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Every business requires additional funds over time to sustain and grow. These funds may be needed for both short-term and long-term purposes. While short-term needs can often be met through loans and advances, long-term growth usually requires a company to raise more capital. For a Private Limited Company, this is achieved by increasing its authorized capital.
Since a private limited company is governed by the Companies Act, any change in its capital structure must be carried out in compliance with the provisions and rules under the Act.
At the time of incorporation, the authorized and paid-up capital is mentioned in the company’s Memorandum of Association (MOA). The company is allowed to issue shares only up to the limit of its authorized capital stated in the MOA. If it intends to issue shares beyond this limit, the MOA must be amended to reflect the increased authorized capital.
When choosing a company name, certain words or phrases require a minimum level of authorized share capital. Below are the key guidelines:
₹5 lakhs – Required if the company name includes the words Hindustan, Bharat, or India.
₹10 lakhs – Required if the name contains words like Enterprise, Products, Business, or Manufacturing.
₹50 lakhs – Required for using words such as Global, Intercontinental, Continental, Asian, or International.
₹50 lakhs – Also required if Bharat, Hindustan, or India appear as the first word in the company’s name.
₹1 crore – Required if the name includes words like International, Global, Universal, Continental, Intercontinental, Asiatic, Industry, or Udhyog.
₹5 crores – Required if the company name uses the word Corporation.
Once shareholders approve the increase in authorized share capital, the necessary documents must be filed with the MCA (Ministry of Corporate Affairs) within 30 days. For private companies, only Form SH-7 is required; filing of Form MGT-14 is not applicable.
The key documents include:
Digital Signature Certificate (DSC):Â A valid DSC of any authorized director of the company.
Memorandum of Association (MoA):Â A copy of the updated or amended MoA.
Articles of Association (AoA):Â A copy of the updated or amended AoA.
Certificate of Incorporation: A copy of the company’s incorporation certificate.
PAN Card: A copy of the company’s Permanent Account Number (PAN) card.
Review the Articles of Association (AoA):Â Verify whether the AoA allows an increase in authorized share capital.
Amend the AoA if required: If the AoA does not permit such an increase, it must be amended in accordance with Section 14 of the Companies Act, 2013.
Call a Board Meeting:Â Issue a notice to hold a board meeting for approving the amendment of the AoA and the increase in authorized share capital.
Call an Extraordinary General Meeting (EGM):Â Issue a notice for conducting an EGM to obtain shareholder approval for the same.
Adhere to notice periods: Ensure the board meeting notice is sent at least 7 days in advance, and the EGM notice at least 21 days in advance.
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