Increase Authorised Capital of a Company

What is authorised capital?

Authorised capital is the maximum share capital a company may issue, as stated in its MOA. A company cannot issue shares beyond it – so before allotting shares to founders, investors or employees (for example under an ESOP), it often needs to increase authorised capital first.

The process

1. Board meeting to approve the increase and call a general meeting.
2. Shareholder resolution at a general meeting, as required by the company’s articles.
3. Altered MOA with the new capital clause.
4. Form SH-7 filed with the ROC within 30 days, with the ROC fee and stamp duty on the increase.

Authorised, issued and paid-up capital

For example, a company may have authorised capital of ₹10 lakh but have issued and paid-up capital of only ₹1 lakh. It can issue more shares up to ₹10 lakh without changing its MOA – beyond that, the authorised capital must be increased first.

How much should you increase it by?

Plan for the shares you expect to issue over the next round or two – to investors, co-founders and an ESOP pool – rather than just the next allotment. Increasing in one step saves repeated filings. But the ROC fee and stamp duty grow with the amount of the increase, so there is no benefit in making it far larger than you need.

After the increase – issuing the shares

Increasing authorised capital does not give anyone shares. To actually issue them, the company:

1. Decides the route – a rights issue to existing shareholders, a private placement or preferential allotment to new investors, or a bonus issue.
2. Gets a valuation report where the law or the investor requires one.
3. Passes the board and shareholder resolutions the route needs, and receives the money in a separate bank account where required.
4. Allots the shares and files the return of allotment (PAS-3) with the ROC.
5. Issues share certificates, or credits the shares in demat form – most private companies other than small companies must now issue shares only in demat form.

Bringing in an outside investor? Agree the terms in a shareholders' agreement and update the articles through an MOA and AOA amendment if needed.

Common mistakes

• Allotting shares before the increase in authorised capital is approved and filed.
• Missing the 30-day deadline for SH-7, which adds late fees.
• Forgetting to update the capital clause in the MOA kept with the company's records.

Our service

We draft the notices, resolutions and altered MOA and file SH-7. Allotting shares after the increase? We can also help with the share allotment filings and a valuation report where needed.