5. Change in Authorized Share Capital5.

Changing the authorized share capital of a company is a significant compliance requirement that may be necessary for various reasons, including expansion plans, attracting investments, or restructuring equity. The authorized share capital represents the maximum amount of share capital that a company is authorized to issue to its shareholders as stated in its Memorandum of Association (MOA).

Compliance Requirements

  1. Understanding Authorized Share Capital: This is the limit set by a company’s MOA on the total value of shares that can be issued to shareholders. A company can increase or decrease its authorized share capital subject to compliance with the Companies Act, 2013.
  2. Types of Changes:
  1. Increase in Authorized Capital: Companies may need to increase their authorized capital to issue new shares or attract new investors.
  2. Reduction of Authorized Capital: Companies can also opt to reduce their authorized capital, although this typically involves a more stringent process.

Legal Process

  1. Board Resolution:
  2. The process begins with the board of directors passing a resolution to propose the change in authorized share capital.
  3. Shareholder Approval:
  4. A general meeting must be convened to seek approval from the shareholders for the proposed change. A special resolution is required for both increasing and decreasing the authorized capital.
  5. Filing with ROC:
  6. After obtaining shareholder approval, the company must file the following forms with the Registrar of Companies (ROC):
    • Form SH-7: For the increase or decrease of authorized share capital.
    • Form MGT-14: To file the special resolution passed by shareholders.
  7. Amending MOA:
  8. If there is an increase in authorized capital, the MOA must be amended accordingly to reflect the new authorized capital.

Required Documentation

  • Board Resolution: Documenting the decision to change the authorized share capital.
  • Notice of General Meeting: Details of the meeting where the change will be approved.
  • Minutes of General Meeting: Recording the proceedings and special resolution passed in the meeting.
  • Form SH-7: For notification to the ROC.
  • Form MGT-14: For filing the special resolution.
  • Amended Memorandum of Association (MOA): Reflecting the new authorized share capital, if applicable.

Charges

  • Professional Fees: ₹2,000 – ₹7,000 for assistance in changing authorized share capital, which may include legal consultation, drafting of resolutions, and filing documents.
  • Government Fees: Charges for filing Form SH-7 and Form MGT-14 with the ROC, which vary based on the amount of authorized capital.

Timeline

  • The process can take approximately 2 to 4 weeks, depending on the company’s internal procedures and the ROC’s processing time.

Important Considerations

  • Implications of Changes: Consider the impact of changes in authorized capital on existing shareholders and the overall equity structure of the company.
  • Regulatory Compliance: Ensure compliance with all applicable laws and regulations when changing authorized share capital.
  • Documentation Accuracy: Maintain accurate records and documentation throughout the process to ensure smooth regulatory compliance.

Conclusion

Changing the authorized share capital of a company is a crucial compliance process that must be conducted in accordance with the provisions of the Companies Act, 2013. Companies should consider seeking professional guidance to navigate the complexities of the process and ensure compliance with all legal requirements.