Increase of Authorised Share Capital

Authorised share capital is the ceiling on the shares a company can issue, and a company cannot allot shares beyond it. If its articles allow, a company increases it by altering its memorandum in general meeting (section 61(1)(a) of the Companies Act, 2013). Because section 13(1) excepts section 61 from the special-resolution rule for altering the memorandum, an ordinary resolution is enough. If the articles do not allow it, they are first altered by special resolution (section 14), which is filed in MGT-14 within 30 days. The shareholders approve it at a general meeting or by postal ballot, not by circulation. A meeting can be called at shorter notice with the consent of at least 95% of the members entitled to vote (proviso to section 101(1)), and a private company's articles can set their own notice rules.

The company files Form SH-7 with the altered memorandum within 30 days of the resolution (section 64(1) and rule 15 of the Companies (Share Capital and Debentures) Rules, 2014). No MGT-14 is needed for the ordinary resolution itself (section 117(3)). The fee is the difference between the fee on the increased capital and the fee on the existing capital, at the rates in the table below. Karnataka stamp duty on the increase is computed on the MCA portal and paid with SH-7. A late SH-7 attracts an additional fee of 2.5% of the fee for each month of delay up to six months, and 3% a month after that. The default also carries a penalty of ₹500 a day, up to ₹5 lakh for the company and ₹1 lakh for an officer in default (section 64(2)). Every copy of the memorandum issued afterwards must show the new capital clause (section 15).

The increase only creates headroom. The shares are then issued separately, by a rights issue under section 62(1)(a), a private placement under section 42 or a bonus issue, each with its own approvals and a return of allotment in PAS-3. PAS-3 is due within 30 days of a rights or bonus allotment (rule 12(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014) and within 15 days of a private placement allotment (section 42(8)). The firm usually plans the increase and the issue that follows together.