Increasing Capital

Increasing capital generally refers to the process of raising additional funds or assets to improve one’s financial position. This can be achieved through various means, such as investing, saving, securing loans, or generating profits from business operations. Increasing capital is often pursued with the goal of achieving long-term financial growth and stability, whether for personal or business purposes.
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Overview of Increasing Capital

When a private company wants to issue new shares, the amount of authorized share capital it has determines the maximum number of shares it can issue. There is no minimum capital increase requirement under the New Companies Act of 2013, which gives companies the flexibility to adjust their authorized capital as needed.

  • To increase the authorized share capital, the board must approve an ordinary resolution and update the capital clause of the Memorandum of Association.
  • The permitted amount of authorized share capital increase varies from company to company and can be changed with shareholder approval.
  • For example, if a company has an authorized capital of 2 lakhs, it can issue shares for up to 2 lakhs.
  • However, if an investor wants to put in one crore, the company can increase its authorized capital to 1 crore. 

Advantages of Increasing Capital

Increases Borrowing Capacity The increase in share capital increases the company’s overall net worth. This increases the company’s borrowing capacity even more. It may entice investment because it can be easily accommodated if sufficient authorised capital is available
Raising Authorised Capital A company can raise as much authorised capital as it wants, and this will be reflected in the MoA with revisions. As a result, increasing authorised capital has a cumulative effect on total company share capital

Registration Process

Steps to Increase Authorised Capital for Your Company-

Step 1: Verify AOA Permission:  Firstly, check whether the company’s AOA allows for an increase in authorised capital. If not, a Special Resolution must be passed to change the AOA.

Step 2: Hold a Board Meeting:  Hold a board meeting to decide on the date, time, location, and agenda for the Extraordinary General Meeting (EGM) to increase the authorised capital. Provide notice of the meeting’s details to all members, shareholders, directors, and auditors of the company.

Step 3: Conduct EGM:  Conduct the EGM on the specified date, time, and location, and seek shareholder approval to increase the authorised capital. If required, submit the necessary form within the given timeframe.

Step 4: Amend Memorandum of Association:  Change the company’s Memorandum of Association to reflect the increase in authorised share capital.

Step 5: File Forms:  If the shareholders approve the resolution, file form SH-7 with the Registrar of Companies within 30 days. If the resolution is passed as a Special Resolution, also file form MGT-14 within 30 days after its passage.”

Required Documents

The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required

1. Digital signature certificate Online: A copy of a DSC from any authorised director of the company

2. Memorandum of Association: A copy of the modified or latest version of the MoA

3. Articles of Association: A copy of the modified or latest version of the AoA

4. Certificate of incorporation: A copy of the company’s incorporation certificate

5. PAN card: A copy of the company’s PAN card

FAQ's Increasing Capital :-

The simplest response to this query is however much you require. Avoid raising too much money and giving away too much equity or taking on too much debt. On the other hand, you don’t want to be preoccupied with financial concerns all the time and prevent yourself from working to your maximum potential as a result.
Increases in the total capital stock could be detrimental to current owners because they typically cause share dilution. As a result, each current share now only reflects a smaller portion of ownership, decreasing the share’s value.
Business owners run the risk of neglecting their company if they are concentrated on obtaining and increasing finance. This disregard may result in a decline in sales, a bad effect on the culture of the organisation, or even a decline in the retention of top people. Profits may decline as a result of all of that.
Business executives, accounting teams, and investors must take into account three criteria to determine cost of capital: cost of debt, cost of equity, and weighted average cost of capital (WACC)

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