Checklist of Compliances for Change in Authorised Capital

In today’s fast-evolving business environment, companies need to remain agile to face new challenges and make the most of growth opportunities. A key aspect of this agility is the ability to modify the authorised capital of the company.

Authorised capital, also called registered or nominal capital, is the maximum amount of share capital that a company is legally allowed to issue to its shareholders. This limit is specified in the company’s Memorandum of Association (MoA).

1. Check the Articles of Association (AoA):
   Before initiating any change, verify if the AoA includes provisions to alter authorised capital. If not, the AoA must be amended as per Section 14 of the Companies Act, 2013.

2. Board Meeting:
   Call a board meeting with a minimum 7 days’ notice to obtain the Board of Directors’ approval to change authorised capital.

3. General Meeting:
   Convene an Extraordinary General Meeting (EGM) with at least 21 days’ notice to shareholders for approving the change through an ordinary resolution. The notice should include an explanatory statement under Section 102 of the Companies Act, 2013, detailing the reasons for the change.

4. Passing Resolution:
   The shareholders vote on the resolution to increase or alter the authorised capital. Once the resolution is passed, the alteration proceeds.

5. Filing with Registrar of Companies (RoC):
   Within 30 days of passing the resolution, file:

   • Form MGT-14: Filing the copy of the resolution, notice, and explanatory statement.

   • Form SH-7: Informing the RoC about the change in authorised capital, attaching the amended MoA and AoA, if applicable.

6. Stamp Duty and Fees:
   Pay applicable stamp duty based on the increase in authorised capital as per the state regulations.

                Introduction to Authorised Capital of a Company

Authorised capital, also referred to as registered capital or nominal capital, is the maximum amount of capital that a company is legally permitted to raise by issuing shares to its shareholders. It is specified in the company’s Memorandum of Association (MoA) and acts as a ceiling on the total share capital the company can offer.

This authorised capital defines the company’s financial capacity and sets the framework for its potential growth. By determining the upper limit of share capital, it helps companies plan for future expansions, acquisitions, or fundraising efforts without frequent amendments to their corporate documents.

In essence, authorised capital ensures regulatory compliance, protects shareholders from the dilution of ownership, and provides flexibility for raising funds as and when the company requires.

                  Purpose of Changing Authorised Capital

a) Expansion:
When a company grows and aims to capitalize on new business opportunities—such as entering new markets, launching products, or upgrading infrastructure—it may need to increase its authorised capital. This enables access to a larger capital pool to support expansion efforts.

b) Fundraising:
Increasing authorised capital provides flexibility to raise funds by issuing additional shares or attracting new investors. This is essential for financing projects, scaling operations, or improving the company’s financial health while broadening investor participation and potentially enhancing market valuation.

c) Shareholders’ Rights and Ownership:
Adjusting authorised capital can influence shareholding patterns. Issuing more shares might dilute existing shareholders’ ownership percentages, affecting their voting rights and earnings per share. Transparency about these changes helps shareholders understand potential implications.

d) Stakeholder Trust and Perception:
Changes to authorised capital can affect the confidence of employees, customers, suppliers, and the wider community. Clear and effective communication outlining the reasons, benefits, and long-term vision behind the change is crucial to maintaining trust and minimizing concerns.

Process of Changing Authorised Capital of a Company

Step 1: Board Resolution
The process starts with the board of directors passing a resolution proposing the alteration of the authorised capital. The resolution should specify the reasons for the change and state the new authorised capital amount. This formal decision by the board indicates their approval to move forward with the alteration.

Step 2: Shareholders’ Approval
The proposed change must be approved by the shareholders. Depending on the company’s Articles of Association and applicable laws, this may require an ordinary or special resolution passed in a shareholders’ meeting. Proper notice, detailing the agenda and reasons for the change, must be given to shareholders within the legally mandated notice period.

Step 3: Amendment of Memorandum of Association (MoA)
If authorised capital is increased or altered, the capital clause in the MoA must be amended accordingly to reflect the new capital limit. This amendment requires shareholder approval in the meeting.

Step 4: Filing of Forms with Registrar of Companies (RoC)
Within 30 days of the resolution being passed, the company must file:

• Form MGT-14 (if applicable) to submit the resolution and related documents.

• Form SH-7 to intimate the RoC about the change in authorised capital, along with the amended MoA and any other required documentation.

Step 5: Payment of Stamp Duty and Fees
Pay the applicable stamp duty and government fees as required by the jurisdiction.

Step 6: Registrar’s Approval
The RoC reviews the submitted documents. Once approved, the change is registered, and the updated authorised capital is reflected officially.

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