Authorized capital refers to the maximum amount of share capital that a company is authorized to issue. Increasing authorized capital is a common practice for companies that wish to raise additional capital or expand their operations. In this guide, we will discuss the steps involved in increasing authorized capital.
Check the Articles of Association (AOA)
The first step is to review the AOA to ensure that there are no restrictions or limitations on increasing the authorized capital. If there are any such restrictions, the AOA will need to be amended before the increase can be made.
Hold a Board Meeting
The board of directors must hold a meeting to approve the increase in authorized capital. The resolution should include details such as the current authorized capital, the proposed increase, and the reason for the increase.
Hold a Shareholder Meeting
After the board approves the increase, a shareholder meeting must be held to obtain their approval. The notice of the meeting should include details about the proposed increase in authorized capital, and the shareholders should be provided with all relevant information and documents to make an informed decision.
File Form SH-7 with the Registrar of Companies (ROC)
After obtaining the approval of the shareholders, the company must file Form SH-7 with the ROC within 30 days of the shareholder meeting. The form should include details such as the current authorized capital, the proposed increase, and the reason for the increase.
Pay the Required Fees
Along with the form, the company must pay the required fees for increasing the authorized capital. The fee is based on the amount of the increase and varies depending on the state in which the company is registered.
Receive Approval from the ROC
Once the form and fees are submitted, the ROC will review the application and provide approval if all requirements are met. The approval process typically takes 15-20 days.
Amend the MOA
Finally, the company must amend its MOA to reflect the increase in authorized capital. The MOA must be submitted to the ROC within 30 days of the approval.
Update the PAN Card
After the authorized capital has been increased, the company must update its PAN card to reflect the new capital structure. The company must submit Form 49A to the Income Tax Department to make the necessary changes.
Update the Company’s Bank Account
The company must update its bank account to reflect the new authorized capital. The bank will require a copy of the approval from the ROC and the amended MOA.
Notify Relevant Authorities
The company must notify all relevant authorities of the increase in authorized share capital. This includes the Registrar of Companies, the Income Tax Department, and any other relevant authorities.
By following these steps, companies can increase their authorized capital and raise additional capital for their operations. It is important to ensure that all legal requirements are met to avoid any legal or financial consequences in the future. A professional advisor or legal expert may be helpful in navigating the process and ensuring compliance with all legal requirements.
Conclusion:
Increasing authorized capital is a process that involves obtaining approval from the board of directors and shareholders, filing the required forms and fees with the ROC, and amending the MOA. By following these steps, companies can successfully increase their authorized capital and raise additional capital for their operations.