Authorized share capital, also called "nominal capital," is the limit set for issuing shares by a company at the time of incorporation. This limit is mentioned in the MOA. Increasing Authorized share capital becomes necessary when a company wants to issue more shares to raise funds, onboard new investors, or convert debt into equity.

Example: A company with an Authorized share capital of ₹50 lakh has already issued shares worth ₹40 lakh. If the company needs to raise ₹20 lakh through equity, it must first increase its Authorized share capital to at least ₹60 lakh.

Why Does a Company Need to Increase Authorized Share Capital?

1. Raising Additional Funds: Companies often require more funds for expansion, R&D, or working capital.
2. Attracting New Investors: Startups or growing businesses may need to issue new shares to investors.
3. Debt-to-Equity Conversion: Loans converted into equity require room within the Authorized share capital.
4. Mergers or Acquisitions: During acquisitions, shares are often issued as a part of the deal.

Real-Life Example: A fintech company, "PayTech Innovations Pvt. Ltd.," initially had an Authorized share capital of ₹10 lakh. As the company secured a deal with venture capital investors to raise ₹5 crore, it had to increase its Authorized share capital to accommodate the new shares.

Legal Framework for Increasing Authorized Share Capital

The process is governed by Section 61 of the Companies Act, 2013. It requires:

1. Authorisation in the Articles of Association (AOA).
2. Board approval followed by shareholder approval.
3. Filing prescribed forms with the Registrar of Companies (ROC).

Steps to Increase Authorized Share Capital

1. Check Articles of Association (AOA)

Before proceeding, make sure that the AOA permits the company to increase Authorized share capital. If the AOA restricts this, it must be amended first by passing a special resolution.

Example: If a company’s AOA caps the Authorized share capital at ₹25 lakh, and the company needs to increase it to ₹50 lakh, the AOA must be updated to remove this restriction.

Steps to Amend the AOA:

• Convene a Board Meeting to approve the amendment.
• Issue a notice for an Extraordinary General Meeting (EGM).
• Pass a special resolution at the EGM to amend the AOA.
• File Form MGT-14 with the ROC within 30 days of passing the resolution.

2. Convene a Board Meeting

The board of directors must discuss and approve the proposal to increase the Authorized share capital. The board will also decide the date, time, and venue for the EGM or Annual General Meeting (AGM) where shareholders will vote on the resolution.

3. Issue a Notice for the General Meeting

Prepare and circulate a notice for the EGM or AGM, clearly stating:

• The proposal to increase Authorized share capital.
• The reasons and implications for the company.
• The revised share capital structure.

4. Pass an Ordinary Resolution

During the general meeting, shareholders must approve the increase in Authorized share capital by passing an ordinary resolution.

Example: A company proposes to increase its Authorized share capital from ₹1 crore to ₹2 crore to raise funds for a new product line. At the EGM, 95% of the shareholders vote in favor, approving the resolution.

5. File Forms with the Registrar of Companies (ROC)

The company must file the following forms with the ROC within the prescribed time:

1. Form SH-7: To notify the ROC about the increase in share capital.
   • Attachments include:
     • Certified copy of the resolution passed at the general meeting.
     • Altered MOA reflecting the revised capital.
     • Notice of the general meeting.
2. Form MGT-14: If the AOA was amended.

Note: Filing these forms late may attract penalties.

6. Update Company Records

Once the ROC approves the increase, the company must:

• Update its Memorandum of Association (MOA).
• Amend share certificates and statutory registers to reflect the new share capital.

Example of the Process

Case Study: "GreenTech Solutions Pvt. Ltd."

• Initial Setup: GreenTech has an Authorized share capital of ₹50 lakh and plans to issue new shares worth ₹1 crore to secure funding for a solar energy project.
• Step 1: The company’s AOA permits an increase in Authorized share capital.
• Step 2: A board meeting is held, and the proposal is approved.
• Step 3: An EGM is convened, and shareholders approve the resolution.
• Step 4: The company files Form SH-7 with the ROC, attaching the revised MOA and other required documents.
• Step 5: The ROC approves the increase, and GreenTech updates its records.

Outcome: GreenTech can now issue shares worth ₹1 crore to raise the required funding.

Key Documents Required

1. Certified copy of the board resolution.
2. Certified copy of the shareholders’ resolution.
3. Updated MOA showing the revised capital structure.
4. Notice and minutes of the EGM/AGM.
5. Forms SH-7 and MGT-14 (if applicable).

Common Challenges and Solutions

1. Incomplete Documentation: Make sure all attachments, such as resolutions and MOA copies, are complete and accurate.
2. Non-Compliant AOA: Amend the AOA before proceeding if it restricts capital increases.
3. Late Filing Penalties: File all required forms within 30 days to avoid additional fees and delays.

FAQs on Increasing Authorized Share Capital

Q1: Is there a limit to how much Authorized share capital can be increased?
No, but the increase must be approved by shareholders and comply with the company’s AOA.

Q2: What happens if Form SH-7 is not filed on time?
Late filing attracts additional fees, which increase with the delay period.

Q3: Can a company reduce its Authorized share capital later?
Yes, but it requires Tribunal approval under Section 66 of the Companies Act, 2013.

Q4: How long does it take for the ROC to approve the increase?
If all forms are correctly filed, the ROC generally approves the increase within 10-15 business days.

Q5: Why is shareholder approval mandatory?
As per the Companies Act, shareholders own the company, and changes to capital structure require their consent.