Capital Change: Process, Fees & Compliance

If a company finds that its existing authorized capital cannot accommodate any additional shares to be issued, it is imperative for the Private Limited Company to go for an increase in authorized share capital, which involves seeking required approvals and filing necessary forms with the Registrar of Companies.

It should be noted that authorised capital increase does not imply that a company has received fresh funds. It only increases the maximum amount of capital that is available for the company to be issued, and the company can go ahead with the actual share issuance in compliance with the applicable laws.

The concept of authorised capital increase online refers to the process through which a company's authorized capital enters into a state of increase according to its Articles of Association. This is necessary when the volume of shares to be issued by the company is higher than the existing volume of authorized capital of the company.

The process usually includes alteration of capital clause regarding the authorized capital, approval by shareholders, and submission of appropriate papers to the MCA. The company must complete the process of obtaining statutory approval before going ahead with issuing shares for an amount above its existing authorized capital.

An increase in authorized capital is necessary when the company intends to raise funds by issuing shares to the existing shareholders, bringing new investors into the company, or doing some restructuring of the company’s capital.

Increase in authorized capital gives an additional possibility of issuing shares without any need of an immediate change of the authorized capital amount in the future.

Some examples of situations are:

• Obtaining more capital

• Issuing shares to investors

• Increasing promoter's contribution

• Introducing new shareholders to the company

• Converting other securities into equity

• Preparing for business expansion

• Restructuring company’s share capital

The Authorised capital enhancement allows to have enough space for potential issuance of shares in the future. This will become especially relevant when the authorized capital approaches the amount already issued or intended for issuance.

Facilitates Future Capital Raising

You can increase authorized capital limits in a situation when you plan to issue additional shares while adhering to the respective share issuance requirements.

This contributes to effective capital management.

When the authorized capital limit is high, the company can plan the future ownership or investment more effectively.

Supports Business Expansion

If you have funding needs in the future, it is better to carry out the capital increase so that you can optimize the capital structure.

When you are going to apply for authorised capital increase, you should first check the amount of authorized capital issued, subscribed and paid up already.

It is important to check the Articles of Association to make sure that they allow making such a modification. If the Articles do not contain the necessary allowance, it will need to be changed before or during the increase of capital.

The Minister of Corporate Affairs administers the Companies Act 2013, while the statutory records are supervised and documented by the Registrar of Companies.

Section 61 of the Companies Act governs increases in authorized capital through it and other related sections. Prior to making the increase in authorized capital known to the registrar, corporate authorization procedures and filings as mandated need to be followed.

The documents needed for filing authorised capital increase filing are:

• Certificate of incorporation

• Memorandum of Association

• Articles of Association

• Existing capital structure

• Board resolution

• Notification of the general meeting

• Explanatory statement

• Special resolution

• Minutes of the general meeting

• Updated shareholder structure

• Digital signature certificates

• Relevant MCA forms

• Details of payment of applicable governmental charges.

There are some rules and regulations that you need to follow to successfully complete the authorised capital increases. Given below are the steps:

Step 1: Evaluation of Existing Capital

We check the existing paid-up and authorized capital so that we can deduce the proposed capital increase.

Step 2: Verify the Company’s Articles

It’s important to see if the Articles allow the company to raise its share capital, and whether they need an amendment.

Step 3: Convene Board Meeting

The board meets to approve the capital increase and give the directions on how to proceed with getting the shareholders’ consent.

Step 4: Send Notice for General Meeting

A notice with the required information is mailed to shareholders.

Step 5: Approve the Resolution

The shareholders approve the amendment and alteration of capital clause to the clause-by-passing the necessary resolution.

Step 6: Submit MCA Form.

The proper MCA filing is submitted along with the relevant documents and government fees.

Step 7: Update Corporate Records

After filing is successfully accomplished, the company’s Memorandum and other records should confirm the increased authorized capital.

The timeline of the capital increase depends on documents, shareholder approval, mca processing time and the existing records of the company.

The overall cost depends on the proposed increase, applicable filing charges by the government, stamp duty and if you have opted for professional help then that is the extra fee you need to pay.

When the required MCA filing has been executed successfully, the company's authorised capital will be updated by the MCA.

You should keep the filed form, the challan, the revised Memorandum, resolutions and other documents necessary as proof of capital amendment.

There is no time limit for amendment of authorised capital. Upon proper registration, it becomes the authorised capital of the company until further amendment is conducted.

However, companies should keep in mind that issued and paid up capital should be less than or equal to the authorised capital. If a company plans to issue shares in excess of the amended capital, another amendment may have to be conducted.

It's important you make sure that capital increase compliance is done, with proper documentation should be maintained for the amended capital.

This would include:

• Memorandum of Association

• MCA master data

• Statutory Registers

• Share capital records

• BOD records

• Financial statements

• Share certificate, if applicable

• Future share issue documents

If in the future a company plans to issue shares, the regulations related to that issue should be followed.

You can expand the authorized capital once more if it has reached its authorized limit, as long as the applicable legal and corporate requirements are met.

You should assess your company's capital structure beforehand to determine if its new authorized limit is sufficient for its existing and future needs and then authorised share capital amendment can be done.

There is no separate approval process for an increase in authorized capital, however, the revised capital will stay valid until a change is made to the company's capital structure at a later date.

Your company remains responsible for annual and event-specific compliance processes. There is no periodic process of authorization capital renewal, instead, you must maintain proper records and timely file required documents with the MCA for any future capital changes.

Renewal Fees

There is no separate annual fee for authorized capital renewal, however, government and professional fees may incur if a company makes any changes in authorization capital in the future.

When you miss out on important corporate approvals or fail to make MCA filings, the company will be liable to incur extra expenses for filing fees and penalties related to relevant provisions of the Companies Act.

It is therefore better to complete the process of approvals and filings before treating the increase in authorised capital as legitimate for the purpose of issuing new shares.

The online filing of authorised capital increase may get rejected for the following reasons:

• The capital information is incorrect

• Mismatch is noticed in MCA records

• Approval resolutions are not complete

• Documents are wrongly prepared

• Shareholders' approval is somehow lacking

• The form is filled in incorrectly

• Government fees are either unpaid or incorrect

• There is a discrepancy between memorandum and filing

• Supporting documents are not complete

Be sure to check the existing records of the company in the MCA database prior to sending the application.

Our company offers authorised capital increase services in various states including Delhi, Maharashtra, Karnataka, Gujarat, Tamil Nadu, Telangana, Uttar Pradesh, Haryana, Rajasthan, Punjab and West Bengal.

The process of authorized capital increase is regulated by the federal company laws but the applicable stamp duty and other charges may differ from state to state.

We provide services for authorized capital increase in several industries including;

• Manufacturing,

• Information technology,

• Healthcare,

• Education,

• E-commerce,

• Trade,

• Logistics,

• Auctioneering,

• Infrastructure and

• Consulting and professional services.

Our experts at Companyregister.co.in offer all-inclusive help related to authorised capital increase this involves analyzing present-day capital organization and drafting resolutions, as well as processing MCA documentations and renewing corporate paperwork.

Our staff takes care of all the operational procedures and checks if the capital records are being maintained properly. We can also lend a helping hand in creating a compliance report, the area of the capital increase and other corporate arrangements, should your company need to go through the process of restructuring.