Increase Authorized Capital of a Company
Increase of authorised share capital under section 61 of the Companies Act 2013. Shareholder resolution, AOA amendment where needed, SH 7 filing with differential stamp duty and ROC fee.
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When Authorised Capital Increase Becomes Necessary
Authorised capital is the upper limit on the value of shares a company can issue. Section 61 of the Companies Act 2013 lets a limited company increase this limit, subject to an authorising provision in the Articles of Association. The increase is achieved through a shareholder resolution, MOA amendment and filing of form SH 7 with the ROC within thirty days. The most common trigger is an investor funding round where new shares need to be issued beyond the existing authorised cap, but the increase is also seen at ESOP scheme rollouts, founder capital infusions and pre IPO restructuring.
Authorised Capital vs Paid Up Capital
| Parameter | Authorised Capital | Paid Up Capital |
|---|---|---|
| Definition | Maximum value of shares the company can issue | Value of shares actually issued and paid for |
| Set by | Memorandum of Association | Determined at each share allotment |
| Increase requires | SH 7 filing after shareholder resolution | PAS 3 filing after share allotment |
| Government fee on increase | On the differential authorised capital | None on allotment within authorised capital |
| State stamp duty | On the differential authorised capital | On the share certificates issued |
Step by Step Process to Increase Authorised Capital
- AOA ReviewWe check the Articles of Association to confirm whether they authorise the board to increase capital, or whether a special resolution and AOA alteration is needed first.
- Board ResolutionThe board passes a resolution recommending the increase and authorising calling of a general meeting.
- Notice of EGMTwenty one clear days notice is issued to shareholders with an explanatory statement under section 102.
- Ordinary or Special ResolutionShareholders pass the resolution authorising the increase. The resolution specifies the new authorised capital, the increase amount and the class of shares.
- File MGT 14 (Where AOA Amendment Is Needed)If the AOA had to be amended, MGT 14 is filed within thirty days of the special resolution.
- File SH 7 With the ROCForm SH 7 is filed with the ROC within thirty days of the resolution. Differential stamp duty and ROC fee are paid online at the time of filing.
- Update MOA and Statutory RegistersThe MOA capital clause is updated to reflect the new authorised capital. The register of members and share capital is revised.
Frequently Asked Questions
Why do I need to increase the authorised capital of my company?
Authorised capital is the maximum value of shares the company is permitted to issue under its Memorandum of Association. If the company wants to issue new shares beyond the existing authorised capital, the authorised amount must first be increased through alteration of the MOA. This typically comes up at funding rounds, ESOP issuance and capital infusion by founders.
What is the procedure to increase authorised capital?
Three steps. Pass an ordinary resolution of shareholders authorising the increase (Articles of Association may also need amendment if they specifically state the authorised capital). File form SH 7 with the ROC within thirty days of the resolution. Pay the differential stamp duty and ROC fee calculated on the increase in authorised capital.
How much does it cost to increase authorised capital?
Two components. ROC government fee on the increase, calculated on the slab applicable to the new authorised capital. State stamp duty on the differential capital, payable to the state of registered office at the prevailing rate. Maharashtra, Karnataka, Delhi and other states each have their own rate. Our professional fee is fixed.
Do I need a special resolution to increase authorised capital?
Typically an ordinary resolution is sufficient under section 61 of the Companies Act 2013, provided the AOA authorises the increase. If the AOA does not authorise the increase, a special resolution is needed and the AOA must be altered through MGT 14 first. We check the AOA at the start of the engagement to confirm which route applies.
How long does it take to increase authorised capital?
Seven to fifteen working days. The EGM notice period is twenty one days (or shorter notice with prescribed consent). SH 7 ROC processing typically takes three to seven working days after filing. The increase becomes effective on ROC approval.
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