Authorized Capital Increase Process - MCA
Increasing authorized capital allows a company to raise its limit for issuing shares, which can help in bringing additional funds for growth, expansion, or debt reduction. This process is governed by the Companies Act, 2013 and relevant MCA rules, and varies slightly for different entities such as Private Limited Companies, Public Limited Companies, LLPs, and OPCs. Here’s a comprehensive guide to the steps, eligibility, forms required, timeline, and regulatory requirements.
Governing Act and Rules
- Section 61 of the Companies Act, 2013 allows a company to increase its authorized capital.
- Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014 outlines the procedures for authorized capital alterations.
- For LLPs, the concept of authorized capital does not apply; instead, they may increase contribution limits as per the LLP Act, 2008.
Eligibility for Increasing Authorized Capital
- Private Limited Companies
- Public Limited Companies
- One Person Companies (OPCs)
Entities Eligible to Increase Authorized Capital
Note: LLPs follow a different procedure to increase capital contribution, as they do not have a share capital structure like companies.
- Board Approval: The Board of Directors must pass a resolution to approve the increase in authorized capital.
- Shareholder Approval: A special resolution must be passed by shareholders (minimum 75% approval).
- MOA and AOA Amendments: The company’s Memorandum of Association (MOA) and Articles of Association (AOA) must reflect the revised capital amount.
Criteria for Authorized Capital Increase
Process for Increasing Authorized Capital
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Step 1
Board Meeting
Convene a Board meeting to discuss and approve the proposed increase in authorized capital.
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Step 2
Pass a Board Resolution
Pass a Board resolution to call for an Extraordinary General Meeting (EGM) to get shareholder approval.
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Step 3
Shareholder Approval (Special Resolution)
Conduct the EGM, where a special resolution is passed by shareholders to approve the increase in authorized capital. The altered MOA must include the new authorized capital limit in the Capital Clause.
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Step 4
File Forms with the ROC
Form MGT-14: Submit within 30 days of passing the special resolution, attaching the Board resolution, special resolution, and altered MOA.
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Step 5
File Form SH-7
This is the primary form for authorized capital increase, filed with the Registrar of Companies (ROC) within 30 days, including details of the new capital structure and required fees.
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Step 6
ROC Verification and Approval
The ROC reviews the forms and, if approved, updates the company’s capital in the MCA database.
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Step 7
Issuance of New Certificates (if applicable)
After approval, the ROC will issue an acknowledgment reflecting the updated capital details.
Step-by-Step Procedure for Companies
- Board and Shareholder Approval: Approximately 1-2 weeks.
- Form Filing (MGT-14 and SH-7): Must be filed within 30 days of the EGM.
- ROC Processing Time: 7-15 working days for verification and approval.
- Total Duration: The process can take around 15-30 days from start to finish, depending on document accuracy and ROC processing times.
Estimated Timeline
- MCA Database: The updated authorized capital will be reflected in the company’s profile on the MCA portal.
- MOA and AOA: The revised authorized capital will be incorporated in the Memorandum and Articles of Association, specifically in the Capital Clause.
Reflection of Updated Authorized Capital
LLPs and Capital Increase
- LLPs do not have authorized share capital; instead, they operate based on partner contributions.
- To increase the capital contribution in an LLP, an LLP Agreement amendment is required, with partner approval.
- Form LLP-3 must be filed with the ROC within 30 days of the agreement change, which reflects the new contribution amounts.
Frequency of Authorized Capital Increase
Companies can increase their authorized capital multiple times as per requirements, provided each increase follows the due process of Board and shareholder approval and ROC filing.
Costs Associated with Increasing Authorized Capital
- ROC Filing Fees: Fees for filing Form SH-7 depend on the company’s capital slab, with higher fees for larger capital increases.
- Stamp Duty: Varies by state; this is paid on the revised authorized capital amount and depends on local stamp duty rates.
Key Benefits of Increasing Authorized Capital
- Ability to Raise Funds: Increased capital allows for additional equity financing options, beneficial for expansion and operational scaling.
- Enhanced Valuation: Increasing capital reflects the company’s growth and readiness to handle larger investments or acquisitions.
- Improved Investor Confidence: Companies with a higher authorized capital are often viewed as more stable by investors and stakeholders.
Consequences of Non-Compliance
- Penalties for Late Filing: Late filing of forms SH-7 or MGT-14 incurs additional fees and penalties.
- ROC Objections: If the authorized capital increase is not registered, the company may face legal issues in issuing shares and other corporate activities.
Example of Tax Impact and Compliance
If a company increases its authorized capital from ₹10 lakh to ₹25 lakh:
- ROC Filing Fees: A proportional increase based on the MCA fee structure.
- Tax Deductions: While authorized capital increases do not offer direct tax benefits, they enable larger transactions that may lead to tax-deductible expenses in operations or debt management.
FAQ
Frequently Asked Questions
These FAQs cover essential details like eligibility, required documents, process steps, and benefits. It helps clarify common queries about setup, compliance, costs, and timelines.
Increasing authorized capital is a key step for companies looking to expand and enhance funding capacity. YathraFin offers complete support for filing, documentation, and compliance to streamline the capital increase process in alignment with MCA requirements.