Need to Issue More Shares? You May First Need to Increase Your Authorised Share Capital.
As businesses grow, they often require additional funding to support expansion, induct new investors, issue shares to existing shareholders, or implement employee stock option plans (ESOPs). However, a company cannot issue shares beyond its authorised share capital. If the existing authorised capital has been fully utilised or is insufficient for future requirements, the company must first increase its authorised share capital in accordance with the provisions of the Companies Act, 2013.
Many business owners confuse authorised share capital with paid-up share capital. These two concepts are different. Authorised share capital represents the maximum amount of share capital that a company is permitted to issue as specified in its Memorandum of Association (MOA), whereas paid-up share capital refers to the amount actually received by the company against shares issued to shareholders.
Increasing authorised share capital involves corporate approvals, alteration of the capital clause of the Memorandum of Association, filing prescribed forms with the Registrar of Companies (ROC), and payment of applicable government fees and stamp duty.
This guide explains when an increase in authorised share capital is required, the legal procedure, applicable ROC forms, government fees, important documents, and practical compliance tips.
What Is Authorised Share Capital?
Authorised share capital is the maximum amount of capital that a company is permitted to issue to its shareholders as specified in the Capital Clause of its Memorandum of Association (MOA).
A company cannot issue shares beyond this authorised limit unless it first increases the authorised share capital through the prescribed legal procedure under the Companies Act, 2013.
When Should a Company Increase Its Authorised Share Capital?
A company may consider increasing its authorised share capital in situations such as:
- Inducting new investors.
- Raising additional equity funding.
- Issuing bonus shares.
- Issuing rights shares.
- Implementing an Employee Stock Option Plan (ESOP).
- Converting certain securities into equity shares.
- Business expansion requiring additional capital.
Before issuing additional shares, companies should verify that sufficient authorised capital is available.
Check the Articles of Association (AOA) First
Before initiating the increase, the company should examine its Articles of Association (AOA).
If the AOA already authorises an increase in authorised share capital, the company may proceed with the prescribed approval process.
If the AOA does not contain the necessary enabling provision, it must first be altered by passing a Special Resolution before increasing the authorised share capital. In such cases, additional ROC filing requirements may also arise.
Step 1 – Hold a Board Meeting
The first formal step is convening a meeting of the Board of Directors.
During the Board Meeting, the directors generally:
- Approve the proposed increase in authorised share capital.
- Approve alteration of the Capital Clause of the MOA.
- Approve alteration of the AOA, if required.
- Approve the notice for the General Meeting.
- Fix the date, time, and venue of the meeting of shareholders.
- Authorise a director or company secretary to complete the filing process.
The Board Resolution forms the basis for the subsequent shareholder approval.
Step 2 – Convene the General Meeting
The company should issue the prescribed notice to shareholders for holding a General Meeting.
During the meeting, shareholders consider the proposal relating to the increase in authorised share capital.
Where the Articles already permit the increase, an Ordinary Resolution is generally sufficient under Section 61 of the Companies Act, 2013.
If alteration of the Articles of Association is also required, a Special Resolution may additionally be passed for that purpose.
Step 3 – Alter the Memorandum of Association (MOA)
After obtaining shareholder approval, the Capital Clause (Clause V) of the Memorandum of Association is amended to reflect the revised authorised share capital.
The revised clause specifies:
- Revised authorised share capital.
- Number of shares.
- Face value of each share.
The amended MOA becomes one of the important documents attached during ROC filing.
Step 4 – File ROC Forms
After passing the required resolutions, the company should file the prescribed forms with the Registrar of Companies.
The principal forms generally include:
Form SH-7
Form SH-7 is filed for notifying the Registrar regarding the increase in authorised share capital.
The form is generally required to be filed within 30 days of passing the shareholder resolution.
Form MGT-14 (Where Applicable)
If the company alters its Articles of Association through a Special Resolution, Form MGT-14 is generally required to be filed within the prescribed timeline, wherever applicable under the Companies Act.
Documents Generally Required
The documents commonly required may include:
- Certified Board Resolution.
- Shareholders' Resolution.
- Altered Memorandum of Association (MOA).
- Altered Articles of Association (AOA), where applicable.
- Notice of General Meeting.
- Explanatory Statement.
- Certified copy of the minutes.
- Digital Signature Certificate (DSC).
- Other supporting documents, wherever required.
Preparing these documents beforehand helps ensure smoother ROC filing.
What Are the Government Fees?
Increasing authorised share capital requires payment of:
- ROC filing fees.
- Registration fees based on the revised authorised share capital.
- Applicable stamp duty, which varies from state to state.
The Ministry of Corporate Affairs calculates the registration fee based on the difference between the fee applicable to the revised authorised capital and the fee already paid on the existing authorised capital, subject to the prescribed fee slabs.
Since the applicable fee depends upon the amount of authorised capital and the category of the company, businesses should calculate the government fees before initiating the filing process.
Why Should Companies Plan the Increase in Advance?
Many companies decide to increase authorised capital only after finalising an investment proposal.
This often delays funding because shares cannot be issued until the authorised capital has been increased and the necessary ROC filings have been completed.
Reviewing the authorised capital well before raising investments, admitting new shareholders, or issuing additional shares helps avoid unnecessary procedural delays and ensures smoother corporate compliance.
What Happens After Filing Form SH-7?
Once Form SH-7 is filed with the Registrar of Companies (ROC), the application is examined to verify whether the prescribed requirements under the Companies Act, 2013 have been complied with.
The Registrar generally reviews:
- The resolutions passed by the company.
- The altered Memorandum of Association (MOA).
- Supporting documents attached with the form.
- Payment of the applicable filing fees and stamp duty.
- Compliance with the prescribed procedural requirements.
If the documents are found to be complete and in order, the Registrar records the increase in the authorised share capital in the company's records maintained with the Ministry of Corporate Affairs (MCA).
Only after the authorised share capital stands increased can the company proceed with the issue of additional shares, subject to compliance with the applicable provisions of the Companies Act.
Understanding Different Types of Share Capital
Many entrepreneurs use different share capital terms interchangeably, although each has a distinct legal meaning.
Authorised Share Capital
This is the maximum share capital that a company is permitted to issue as stated in its Memorandum of Association.
Issued Share Capital
Issued share capital refers to the portion of the authorised share capital that the company has actually offered for subscription.
Subscribed Share Capital
Subscribed share capital represents the portion of the issued share capital that investors or shareholders have agreed to subscribe.
Paid-up Share Capital
Paid-up share capital refers to the amount that shareholders have actually paid against the shares allotted to them.
Understanding these concepts helps companies determine whether an increase in authorised share capital is actually required before issuing additional shares.
Common Mistakes Companies Should Avoid
Delays in increasing authorised share capital often arise because important legal requirements are overlooked.
Some common mistakes include:
- Not checking whether the Articles of Association permit the increase.
- Passing an incorrect type of shareholder resolution.
- Failing to alter the Memorandum of Association after approval.
- Missing the prescribed ROC filing timeline.
- Uploading incomplete or incorrect supporting documents.
- Calculating government fees incorrectly.
- Issuing shares before the authorised capital has been formally increased.
- Ignoring the applicability of Form MGT-14 where required.
Reviewing each compliance step carefully helps reduce the likelihood of delays or resubmissions.
Practical Compliance Tips Before Increasing Authorised Share Capital
Companies planning to raise capital should review their authorised share capital well before beginning the fundraising or share allotment process.
Maintaining updated statutory records, verifying the provisions of the Articles of Association, preparing Board and Shareholder resolutions in advance, and calculating the applicable ROC fees beforehand can significantly streamline the process.
It is also advisable to preserve copies of all resolutions, altered constitutional documents, ROC acknowledgements, and payment receipts for future corporate records and compliance purposes.
Frequently Asked Questions
1. What is authorised share capital?
Authorised share capital is the maximum amount of share capital that a company is permitted to issue to its shareholders as specified in the Memorandum of Association. Shares cannot generally be issued beyond this limit unless it is increased through the prescribed legal procedure.
2. Is shareholder approval required to increase authorised share capital?
Yes. A company is generally required to obtain shareholder approval by passing the appropriate resolution in accordance with the Companies Act, 2013 and its constitutional documents before increasing its authorised share capital.
3. Which ROC form is used for increasing authorised share capital?
Form SH-7 is the principal ROC form used for filing the increase in authorised share capital with the Registrar of Companies. Depending on the circumstances, additional forms such as Form MGT-14 may also be applicable.
4. Is alteration of the Memorandum of Association mandatory?
Yes. Since the authorised share capital is stated in the Capital Clause of the Memorandum of Association, the clause is generally required to be altered after obtaining the necessary shareholder approval.
5. Can a company issue shares before increasing authorised capital?
No. A company should first complete the prescribed procedure for increasing its authorised share capital and obtain the necessary ROC compliance before issuing shares beyond the existing authorised limit.
6. How are government fees calculated for increasing authorised share capital?
Government fees generally depend on the revised amount of authorised share capital, the fee structure prescribed by the Ministry of Corporate Affairs, and the applicable stamp duty in the respective state or union territory.
Real-Life Example: Understanding Increase in Authorised Share Capital
Let us understand the process of increasing authorised share capital with a practical business example.
ABC Manufacturing Private Limited was incorporated with an authorised share capital of ₹10 lakh and paid-up share capital of ₹8 lakh. Initially, this structure was sufficient for the company's operations.
After three years, the company received a large investment proposal from new investors. The promoters decided to issue additional shares to raise funds for business expansion. However, the existing authorised share capital limit was not sufficient to issue the proposed number of new shares.
Before issuing additional shares, the company had to increase its authorised share capital.
The company followed the required procedure:
- The Board of Directors approved the proposal.
- A General Meeting was conducted to obtain shareholder approval.
- Required resolutions were passed.
- Necessary ROC forms were filed.
- Applicable government fees and stamp duty were paid.
After completing the compliance process, the company's authorised share capital was increased, allowing it to issue additional shares and complete the fundraising process.
This example shows that authorised share capital plays an important role when a company plans expansion, raises funds, brings in new investors, or restructures its shareholding.
Practical Lesson From This Example
Companies should review their authorised share capital before planning:
- New share issuance.
- Fundraising from investors.
- Expansion of business operations.
- Issue of shares to promoters or employees.
- Conversion of loans into equity.
Issuing shares beyond the authorised share capital limit is not permitted. Therefore, increasing authorised share capital before issuing new shares helps companies remain compliant with the Companies Act, 2013.
Proper planning also avoids delays in investment transactions and ensures smooth corporate compliance.
Conclusion
Increasing Authorised Share Capital is a common corporate action for companies planning to raise additional funds, admit new investors, issue bonus or rights shares, or support future business expansion. Since a company cannot issue shares beyond the authorised limit specified in its Memorandum of Association, completing the prescribed legal procedure is an essential step before any further allotment of shares.
The process typically involves reviewing the Articles of Association, obtaining Board and shareholder approvals, altering the Memorandum of Association, filing Form SH-7 with the Registrar of Companies, and paying the applicable government fees and stamp duty. Where required, additional filings such as Form MGT-14 should also be completed within the prescribed timelines.
By planning the increase in authorised share capital in advance, maintaining accurate corporate records, and following the statutory procedure carefully, companies can avoid unnecessary delays and ensure smooth compliance while supporting their future capital requirements.
Need Help Increasing Your Company's Authorised Share Capital?
Increasing authorised share capital involves multiple compliance steps, including shareholder approval, preparation of resolutions, filing of ROC forms, and payment of applicable fees.
A mistake in documentation or delay in filing can affect your company's ability to issue new shares or complete investment transactions.
FilingSuvidha experts can help your company increase authorised share capital smoothly and complete all ROC compliances accurately.
Our experts can assist you with:
✔ Reviewing existing authorised and paid-up capital structure
✔ Preparing Board and Shareholder Resolutions
✔ Conducting required compliance procedures
✔ Filing necessary ROC forms
✔ Calculating applicable government fees and stamp duty
✔ Ensuring complete compliance under the Companies Act, 2013
Planning to raise funds or issue new shares? Don't let authorised capital limitations delay your business plans. Get expert assistance from FilingSuvidha and complete your share capital increase process without compliance hurdles.
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