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Guidelines for Increase in Authorised Share Capital

• ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
• ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name.
• ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company’s name.
• Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
• For employing words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘asiatic’, and ‘industry’ anywhere in the firm name, as well as ‘udhyog’ and ‘industry’, the fine is ₹1 crore.
• ₹ 5 Crore if the company name contains the word ‘Corporation’ even once.

Documents Required for Increase in Authorised Share Capital

The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.

• Digital Signature Certificate Online: A copy of a DSC from any authorised director of the company
• Memorandum of Association: A copy of the modified or latest version of the MoA
• Articles of Association: A copy of the modified or latest version of the AoA
• Certificate of incorporation: A copy of the company’s incorporation certificate
• PAN card: A copy of the company’s PAN card.

Checklist For Increasing Authorised Share Capital

• Review the Articles of Association (AoA) to confirm whether they permit an increase in authorised share capital.

• If the AoA does not provide such authority, amend it in accordance with Section 14 of the Companies Act, 2013.

• Send a notice to convene a Board Meeting to propose the amendment of the AoA and the increase in authorised share capital.

• Circulate a notice for holding an Extraordinary General Meeting (EGM) to seek shareholder approval for the amendment and capital increase.

• Ensure that the notice for the Board Meeting is given at least 7 days in advance, and the notice for the EGM is issued at least 21 days prior to the meeting.

Types of Capital in a Company

There are four main types of capital in a company:

1. Equity Capital

Equity capital refers to the funds invested in a company by its shareholders. It is a permanent source of finance that does not require repayment and carries no interest obligation. However, shareholders are entitled to dividends when profits are earned, and in the event of liquidation, they are the last to be repaid. Equity capital is vital as it provides long-term stability and supports the company’s growth and expansion.

2. Debt Capital

Debt capital represents the money borrowed by a company from external lenders such as banks and financial institutions. It is a temporary source of finance, as it must be repaid within a stipulated period along with interest. Although lenders enjoy priority over shareholders in repayment during liquidation, excessive debt increases the financial risk of a company.

3. Working Capital

Working capital is the capital used to finance the day-to-day operations of a business, such as wages, rent, inventory, and utilities. It is a revolving source of finance, continuously replenished as the company collects receivables and pays off short-term obligations. Adequate working capital ensures smooth operations and liquidity in business activities.

4. Trading Capital

Trading capital refers to the funds set aside for buying and selling goods or services as part of the company’s commercial activities. Like working capital, it is a revolving source of finance since it is regularly used and replenished through ongoing trade transactions.

The amount of each type of capital that a company needs will vary depending on the size and stage of the company. For example, a startup company will typically need more equity capital than a mature company.

The following are some of the key differences between the four types of capital:

1. Equity Capital

Equity capital is a permanent source of finance raised by issuing shares to shareholders. It does not require repayment and does not carry any interest obligation. Shareholders earn returns in the form of dividends and capital appreciation. However, in the event of bankruptcy, they are the last to be repaid, after all other liabilities are cleared.

2. Debt Capital

Debt capital refers to funds borrowed from external sources such as banks, financial institutions, or bondholders. It is a temporary source of finance that must be repaid along with interest within an agreed period. Unlike shareholders, lenders enjoy priority in repayment during liquidation, making debt less risky for them but riskier for the company if debt levels are too high.

3. Working Capital

Working capital represents the funds used for day-to-day operations like paying wages, rent, inventory, and utilities. It is a revolving form of finance, constantly replenished through business activities such as sales collections and short-term borrowings. Maintaining adequate working capital ensures smooth and uninterrupted operations.

4. Trading Capital

Trading capital refers to the money allocated for buying and selling goods or services as part of a company’s business activities. Like working capital, it is a revolving resource, as it is continuously used and replenished through trading transactions.

How to Increase Authorised Shares?

Procedure for Increasing Authorised Share Capital in a Private Limited Company

Under Section 61 of the Companies Act, 2013, a company having share capital can alter the capital clause in its Memorandum of Association (MoA) through an ordinary resolution in a general meeting, provided that such alteration is permitted under its Articles of Association (AoA). The company must also file Form SH-7 with the Registrar of Companies (ROC) within 30 days of the resolution.

A private company can increase its authorised share capital only when specifically permitted by its AoA and with the approval of members through a resolution passed in a general meeting.

Step 1: Verify Articles of Association (AoA)

The process begins by examining the AoA to ensure that it contains a clause permitting an increase in authorised share capital. If such provision is absent, the AoA must be amended in accordance with Section 14 of the Companies Act, 2013.

Step 2: Convene a Board Meeting

The company’s board of directors must hold a meeting to consider and approve the proposal for increasing authorised share capital. At this meeting, the board passes a resolution specifying the proposed amount of increase and authorises the calling of an Extraordinary General Meeting (EGM).

Step 3: Call an Extraordinary General Meeting (EGM)

The company issues a notice of the EGM to all shareholders, giving at least 21 days’ prior notice, along with details of the proposed increase in authorised capital.

Step 4: Pass a Resolution in the EGM

At the EGM, shareholders must approve the increase in authorised share capital by passing a resolution (ordinary or special, depending on the AoA requirements). Typically, a special resolution requires the support of at least 75% of shareholders present and voting.

Step 5: File with the Registrar of Companies (ROC)

Once the resolution is passed, the company must file the necessary documents with the ROC, including Form SH-7, within 30 days. Upon approval, the ROC issues a certificate confirming the alteration in authorised capital.

Step 6: Issue of New Shares

After the authorised share capital has been increased, the company may issue new shares in accordance with the procedures specified in its AoA, subject to any restrictions or conditions mentioned therein.

Post Compliance Steps To Increase Authorised Share Capital

Steps to Increase Authorised Share Capital

Step 1: Board Resolution
The process begins with a board meeting where directors review the company’s Articles of Association (AoA) to check if they allow an increase in authorised share capital. If the AoA does not provide such authority, it must first be amended. The board then passes a resolution to convene a general meeting of shareholders to consider the increase.

Step 2: Passing a Resolution at the General Meeting
In the general meeting, members approve the proposal to increase the authorised share capital by passing a resolution. Alongside this, any required amendments to the Memorandum of Association (MoA) are also adopted.

Step 3: Filing with the Registrar of Companies (ROC)
After the resolution is passed, the company must file the necessary forms with the ROC, such as Form MGT-14 (for filing resolutions) and Form SH-7 (for alteration of authorised share capital).

Step 4: Approval by the ROC
The ROC reviews the submitted forms and verifies compliance. Once satisfied, the ROC grants approval and updates the company’s master data on the MCA portal to reflect the revised authorised share capital.

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