Change in Authorised Share Capital Service

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Table Of Content

  1. Change in Authorised Share Capital
  2. Need for Changing Authorised Share Capital
  3. Key Requirements for Changing Authorised Share Capital
  4. Process for Changing Authorised Share Capital
  5. Documents Required for Changing Authorised Share Capital
  6. FAQs
  7. Get in Touch with us

Change in Authorised Share Capital

Authorised share capital refers to the maximum amount of capital a company can legally issue to its shareholders, as defined in its Memorandum of Association (MoA). As a company grows, there may be a need to raise additional funds for expansion, new projects, or to attract investors. One way to do this is by changing the authorised share capital, which involves modifying the maximum number of shares the company can issue.

Changing the authorised share capital enhances a company’s financial flexibility, enabling it to raise funds, attract investors, and support strategic initiatives such as mergers, acquisitions, or joint ventures. This process, also known as altering the authorised share capital, is governed by the Companies Act, 2013, and requires board approval, shareholder consent, and filing the necessary documents with the Registrar of Companies (RoC).

This strategic move provides businesses with the flexibility to issue more shares, expand the shareholder base, and improve governance structures. By changing authorised share capital, a company can better position itself for growth and expansion in competitive markets.

Need for Changing Authorised Share Capital

By changing the authorised share capital, a company can raise funds through equity rather than debt, reducing borrowing costs and supporting new projects.
Altering share capital enables the company to bring in new shareholders, offering greater flexibility in ownership distribution and governance.
Additional share capital is often necessary for facilitating mergers, acquisitions, or joint ventures, allowing the company to integrate new stakeholders.
Increasing authorised share capital helps attract investors by issuing new shares to fund business expansion and growth initiatives.

Key Requirements for Changing Authorised Share Capital

  • AoA Authorization: Ensure that the company’s Articles of Association (AoA) authorize the change or alteration of share capital.
  • Special Resolution Requirement: A special resolution must be passed at a General Meeting with at least a three-fourths majority.
  • Compliance with Companies Act, 2013: Follow the procedures outlined in the Companies Act, 2013, to ensure legal compliance.

    • Process for Changing Authorised Share Capital

    Step 1

    The company’s AoA must allow for the change in authorised share capital. If not, the AoA must be amended first.

    Step 2

    A board meeting must be held to approve the proposal for increasing the authorised share capital. A resolution must be passed to proceed.

    Step 3

    Send a notice to all shareholders calling for an Extraordinary General Meeting (EGM), including details of the proposal to alter the authorised share capital.

    Step 4

    At the EGM, pass a special resolution with the approval of at least 75% of the shareholders present and voting.

    Step 5

    File Form SH-7 with the RoC within 30 days of passing the resolution, attaching the required documents:

    • Copy of the special resolution.
    • Altered MoA and AoA.

    Step 6

    Pay the applicable RoC fees based on the increase in share capital.

    Step 6

    Once approved by the RoC, update the company’s MoA, AoA, and all corporate records to reflect the new authorised share capital.

    Documents Required for Changing Authorised Share Capital

    Copy of Board Resolution
    Copy of Special Resolution passed by shareholders
    Notice of General Meeting
    Altered MoA and AoA
    Form SH-7
    Payment Receipts

    FAQs

    What is authorised share capital?

    Authorised share capital is the maximum amount of capital a company is legally permitted to issue to its shareholders, as specified in the company’s Memorandum of Association (MoA). It sets the upper limit on the total shares a company can issue.

    What does changing authorised share capital mean?

    Changing authorised share capital refers to increasing or reducing the maximum number of shares a company can issue. This modification is governed by the Companies Act, 2013, and requires shareholder approval, board resolutions, and filing with the RoC.

    Why would a company increase its authorised share capital?

    A company may choose to increase its authorised share capital to raise funds for expansion, attract new investors, or support strategic initiatives like mergers or acquisitions.

    What form is required for changing authorised capital?

    To change authorised share capital, the company must file Form SH-7 with the RoC. This form includes details of the changes and the resolution passed by shareholders.

    What happens if Form SH-7 is not filed on time?

    Failure to file Form SH-7 within the 30-day deadline may result in penalties under the Companies Act, 2013.

    Can a company decrease its authorised share capital?

    Yes, a company can reduce its authorised share capital if it no longer requires the ability to issue a large number of shares. This is done by passing a special resolution and complying with the relevant provisions of the Companies Act, 2013. However, the process is less common compared to increasing authorised capital.

    Does altering authorised share capital require any government approvals?

    Altering authorised share capital does not require direct government approval but must be registered with the Registrar of Companies (RoC). The company must submit Form SH-7 along with supporting documents to the RoC, which updates the company’s legal records.

    Can the authorised share capital be changed multiple times?

    Yes, a company can alter its authorised share capital multiple times as long as it follows the procedures outlined in its Articles of Association and the Companies Act, 2013, including board and shareholder approvals.

    What are the consequences of not updating the authorised share capital in the MoA and AoA?

    If the company fails to update its MoA and AoA to reflect the new authorised share capital, it may face legal and operational issues, including penalties for non-compliance. The company would also be unable to issue shares beyond the previously registered authorised capital.

    Does the change in authorised share capital affect a company’s paid-up capital?

    No, changing the authorised share capital does not directly affect the company’s paid-up capital. Paid-up capital represents the amount shareholders have paid for the shares issued. The authorised share capital sets the upper limit, but the company will still need to issue shares to reach the paid-up capital.

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