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As your business grows, so does the need for additional funding. Whether you require resources for immediate needs or long-term expansion, various financing options are available. Short-term needs can often be addressed through loans or advances. However, for sustained growth, especially in a Private Limited Company, increasing the company’s authorized capital may be necessary.

In accordance with the Companies Act, 2013, any modifications to the structure of a Private Limited Company must comply with the Act's regulations. This ensures that all changes are legally sound and in line with the governing rules.

At Corpadda, we assist businesses in navigating these requirements, ensuring a smooth process for adjusting your company’s capital structure to meet evolving financial needs.

Authorized share capital refers to the maximum amount of capital that a company is allowed to issue to its shareholders according to its governing documents. While a portion of this capital might remain unissued, any changes to the authorized capital require shareholder approval.

According to the Companies Act, 2013, specifically Section 2(8), the limit for authorized capital is outlined in the Memorandum of Association (MOA) under the Capital Clause. A company can increase its authorized capital by amending the MOA, but it cannot issue shares beyond this limit without first adjusting the authorized capital.

Key Features of Authorized Share Capital:

  • Initial Determination: Authorized capital is set at the time of the company's formation and incorporation.
  • Fee Implications: The Registrar of Companies (ROC) fees are based on the amount of authorized capital.
  • Document Specification: The authorized capital must be detailed in both the MOA and Articles of Association (AOA).
  • Capital Limit: It represents the maximum amount of capital a company can issue, which affects the nominal value of shares.
  • Modifiable: The authorized capital can be adjusted after the company is established.
  • Not a Financial Measure: It is not used to calculate the company's net worth.
  • Issuance Flexibility: A company is not obligated to issue shares up to the authorized capital limit; it can issue fewer shares if desired.

1. Update Your Articles of Association

Before proceeding with an increase in authorized share capital, check your company’s Articles of Association (AOA). These documents outline the internal regulations of your company. If the AOA includes provisions for changing authorized capital, you can move forward. If not, you'll need to amend the AOA in accordance with Section 14 of the Companies Act, 2013, before making any changes.

2. Schedule a Board Meeting

Send out the meeting agenda to all directors at least 7 days prior to the meeting. During this meeting, pass a resolution to call an Extraordinary General Meeting (EGM) and issue a notice as per Section 101 of the Act. This EGM will present the proposed change in authorized capital for approval.

3. Notify Shareholders and Others

Ensure that shareholders receive detailed notice of the EGM, including the agenda, date, time, and venue. Specify the voting method in the notice. The notice should be distributed to:

  • Auditors
  • Directors
  • Shareholders

The notice must be sent at least 21 days before the EGM. A shorter notice period can be used if 95% of members consent, either electronically or in writing.

4. Conduct the Extraordinary General Meeting (EGM)

At the EGM, discuss and vote on the proposed increase in share capital. Follow the established voting procedure to reach a decision. Once the resolution is approved, attach an explanatory statement and proceed with the increase in authorized capital.

To ensure compliance with regulatory requirements, companies must file eForm SH-7 and eForm MGT-14 (when applicable) with the Registrar of Companies (RoC) within 30 days of passing a resolution. Here’s how you can manage these filings efficiently with Corpadda:

Form MGT-14

File Form MGT-14 with the RoC within 30 days of passing the resolution. This form needs to be submitted through the MCA portal and should include:

  • Company details, including CIN (Corporate Identification Number).
  • Reason for filing the form.
  • Dispatch date of the notice.
  • Date when the resolution was passed.
  • Details of the resolution.
  • DIN (Director Identification Number) and Digital Signature, where necessary.

Required Documents for Form MGT-14:

  • Notice of the Extraordinary General Meeting (EGM) and the Explanatory Statement as per Section 102 of the Companies Act, 2013.
  • Certified copy of the resolution passed at the EGM.
  • Updated Memorandum of Association (MOA).
  • Updated Articles of Association (AOA) reflecting any changes in authorized share capital.

Form SH-7

Submit Form SH-7 to the RoC within 30 days following the resolution. This form is used to update the Registrar about changes in the authorized share capital and should be filed through the MCA portal. Include the following information:

  • Company details, including CIN.
  • Type of resolution.
  • Date of the meeting.
  • Service Request Number (SRN) from Form MGT-14.
  • Details of the original and new authorized share capital.
  • Breakdown of the additional share capital.
  • Stamp Duty Fees Paid.
  • Use of Digital Signatures and DIN where applicable.

Required Documents for Form SH-7:

  • Certified copy of the resolution regarding capital change.
  • Updated MOA.
  • Updated AOA (if alterations include an increase in authorized share capital).
  • Any optional additional attachments if required.

Important Note:

Ensure that these forms are submitted within the stipulated timeframe to avoid any penalties or legal consequences for the company and its officers.

  • For Accounts Subject to Audit: The deadline is October 31st of the assessment year.
  • When Reporting with Form No. 3CEB: The due date is November 30th of the assessment year.
  • For Non-Audited Accounts: The deadline is July 31st of the assessment year.

How to Complete the ITR 6 Form

To ensure a smooth and accurate filing process for the ITR-6 Form, follow these recommended steps provided by the Income Tax Department:

  1. Part A
  2. Schedules
  3. Part B
  4. Verification

Adhering to this sequence helps organize your information and simplifies the completion of your income tax return.

No Documents Required

When filing the ITR-6 form, you do not need to attach any documents, such as TDS certificates. However, it is important to reconcile the taxes deducted, collected, or paid on your behalf by comparing them with your Tax Credit Statement Form 26AS.

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