Increase authorized & Paidup capital
At JuroLegal, we help companies efficiently manage the increase of Authorized and Paid-up Share Capital in full compliance with the Companies Act, 2013 and Ministry of Corporate Affairs (MCA) regulations. Expanding your capital base enables your company to raise additional funds, issue new shares, and strengthen its financial position. Our experts handle the entire legal and procedural process — from drafting board and shareholder resolutions, altering the Memorandum of Association (MoA) and Articles of Association (AoA), filing necessary forms (SH-7, PAS-3) with the ROC, to obtaining official approval from the Registrar of Companies.
According to Section 2 (8) of the Companies Act 2013, “Authorized Capital” is the capital authorised by the company’s memorandum to be the maximum amount of the share capital of the company.
The company can expand its business to the level of the authorised capital. If the company has to expand the business, infusing more funds than at first, the company has to increase the authorised capital.
Authorised share capital represents the total potential value of shares a company can issue. In contrast, paid-up capital is the actual value of shares that have been fully issued, subscribed to, and paid for by shareholders. The company cannot exceed its authorised share capital with its paid-up capital. Therefore, if a company’s paid-up capital reaches the limit of its authorised capital and it aims to welcome new shareholders, it has two options:
Either increase its authorised share capital and then issue new shares or
Facilitate the transfer of shares from current shareholders to new ones.
Authorised share capital increase refers to raising the maximum amount of share capital that a company is legally permitted to issue to its shareholders. This is typically achieved through an amendment to the company’s Memorandum of Association (MOA)
By increasing the authorised share capital, a company expands its capacity to issue additional shares, enabling it to raise funds from existing or new shareholders. This process is often undertaken to support business expansion, finance new projects, or meet evolving financial needs.
Increasing the authorized capital of a company involves several legal and procedural steps. The authorized capital is the maximum amount of share capital that a company is authorized to issue to shareholders as specified in its memorandum of association. Here is a step-by-step process typically followed to increase the authorized capital:
1.Board Meeting:
Convene a board meeting to discuss and approve the proposal for increasing the authorized capital.
Pass a board resolution approving the increase in authorized capital and calling an Extraordinary
General Meeting (EGM) to obtain shareholders’ approval.
2. Notice of EGM:
Send a notice of the EGM to all shareholders, directors, and auditors of the company. The notice should include the date, time, and venue of the meeting along with the agenda, which is to approve the increase in authorized capital.
3. Extraordinary General Meeting (EGM):
Hold the EGM and pass a special resolution to approve the increase in authorized capital. The resolution must be passed by a majority of shareholders as required by the company’s articles of association and relevant laws.
4. Amendment of Memorandum of Association (MOA):
The increase in authorized capital requires an amendment to the capital clause of the Memorandum of Association (MOA) of the company. The special resolution passed at the EGM will include the amendment to the MOA.
5. Filing with Registrar of Companies (RoC):
Prepare and file the necessary forms and documents with the Registrar of Companies (RoC) within the prescribed time frame. This typically includes:
Form MGT14: Filing of the special resolution passed at the EGM.
Form SH7: Notice of alteration of share capital.
Attachments to these forms usually include:
Certified true copy of the EGM resolution.
Notice of EGM along with the explanatory statement.
Altered MOA.
Any other required documents.
6. Payment of Fees:
Pay the requisite fees to the Registrar of Companies (RoC) for the increase in authorized capital. The fees vary based on the amount of increase in authorized capital and the jurisdiction of the company.
7. Update Company Records:
Update the company’s statutory registers, records, and books to reflect the increase in authorized capital.
Issue new share certificates if necessary, in accordance with the increase.
8. Confirmation by RoC:
After the RoC reviews and approves the filings, they will issue a certificate confirming the increase in authorized capital. This certificate serves as official proof that the company’s authorized capital has been increased.
9. Disclosure in Financial Statements:
Reflect the increased authorized capital in the company’s financial statements and any other relevant documents or reports.
During the formation of a Private Limited Company, the initial authorised and paid-up capital levels are established in the company’s Memorandum of Association (MOA). This sets the maximum amount of share capital that the company is allowed to issue to its shareholders. Should the company aim to exceed this predetermined cap by issuing additional shares, it necessitates an amendment to the MOA to raise the authorised capital threshold, thereby accommodating the issuance of new shares beyond the original limit.
- As mentioned above, a company might consider increasing its authorised capital for several reasons, including:
- Addressing significant financial needs
- Funding new business initiatives
- Facilitating mergers or acquisitions and infusing capital as part of a restructuring plan
- Issuing additional shares
- Converting debt into equity
- Meeting regulatory requirements, if applicable
Specific documentation must be submitted within 30 days following shareholder approval to formalise an increase in authorised share capital. For private companies, this involves submitting the resolution through eform SH7, while the submission of eform MGT14 is not required. Ensure the following documents are prepared for filing:
The latest amended version of the Memorandum of Association (MoA)
The most recent or revised copy of the Articles of Association (AoA), particularly in cases where the AoA has been altered
A copy of the ordinary resolution approved by the company’s shareholders
Paid-up capital, also called paid-in capital or contributed capital, is arrived at from two funding sources: the par value of stock and excess capital. Each share of stock is issued with a base price called its par. Typically, this value is quite low, often less than 1. Any amount paid by investors that exceeds the par value is considered additional paid-in capital or paid-in capital in excess of par.
In the shareholders’ equity section of the balance sheet, the par value of issued shares is listed as common stock or preferred stock. Share capital may appear as:
- Paid-up capital to represent funds already received from investors
- Called-up capital to represent funds due to the company
- Paid-in capital to represent funds that satisfy the full purchase price of the shares
Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. A company could, however, receive authorization to sell more shares.
A company’s paid-up capital figure represents the extent to which it depends on equity financing to fund its operations. This figure can be compared with the company’s level of debt to assess if it has a healthy balance of financing, given its operations, business model, and prevailing industry standards.