Authorized Capital Increase

Authorized capital is the maximum capital a company is legally allowed to raise as stated in its MOA. It is increased when the company needs to raise additional funds through fresh share issuance, private placement, rights issue, or ESOPs, and the current authorized capital is insufficient.

The procedure involves convening a board meeting to approve the proposal, convening a general meeting to pass an ordinary resolution (unless AOA requires special resolution), filing Form SH-7 with the Registrar within 30 days along with altered MOA, AOA, and resolution, and paying the prescribed fees.

Authorized capital is the maximum capital a company can raise as per MOA. Paid-up capital is the actual amount received from shareholders against issued shares. Authorized capital must always be equal to or greater than paid-up capital.

Generally, no government approval is required for increasing authorized capital unless the company is a government company or specific industries requiring regulatory approval (banks, NBFCs, insurance). Standard companies only need shareholder approval and ROC filing.

Costs include ROC filing fees (based on the amount of increase and state of registration), professional fees for documentation, stamp duty on altered MOA (varies by state), and fees for increasing bank guarantee limits if applicable.

While there is no statutory ceiling on authorized capital, practical considerations include cost (stamp duty and filing fees increase with higher capital), business justification, and regulatory scrutiny for unreasonably high capital without corresponding business plans.

Form SH-7 is filed with the Registrar to report alterations to share capital, including increase in authorized capital, consolidation/division of shares, conversion of shares into stock, and cancellation of shares. It must be filed within 30 days of the resolution.

If authorized capital is insufficient, the company cannot legally issue new shares beyond the authorized limit. It must first increase the authorized capital through the proper procedure before issuing shares to new investors or existing shareholders.

Increasing authorized capital does not by itself dilute existing shareholders. Dilution occurs only when new shares are actually issued. Authorized capital increase merely creates the capacity to issue shares in the future.

Yes, authorized capital can be reduced by passing a special resolution and filing Form SH-7 with the Registrar. However, the reduced authorized capital cannot be less than the current paid-up capital. Reduction requires court approval in some cases.