The ceiling nobody thinks about — until a funding round hits it
A company is about to close its first real investment, or bring in a co-founder with equity, or convert an investor's note into shares — and the paperwork stalls on a line nobody had thought about in months: the authorised share capital. You cannot issue shares beyond it, and most companies incorporate with a small authorised capital and never revisit it. So before you can allot a single new share in the round, you often have to raise the ceiling first. This is how a company increases its authorised capital through Form SH-7 — the quiet prerequisite that sits in front of almost every equity issue.
Authorised versus paid-up — two different numbers
Every company has two capital figures, and confusing them is where the trouble starts. Authorised (or nominal) capital is the maximum share capital the company is permitted to issue — it lives in the capital clause (Clause V) of the memorandum. Paid-up capital is what has actually been issued to shareholders and paid for. Authorised is the ceiling; paid-up is what is under it. You can issue shares freely up to the authorised limit, but the moment a new allotment would push paid-up capital past that ceiling, you have to lift the ceiling itself. Raising authorised capital does not issue any shares or bring in any money on its own — it simply creates the headroom for the actual issue that follows.
Where the power comes from
Section 61(1)(a) of the Companies Act, 2013 lets a limited company with a share capital increase its authorised capital by altering the capital clause of its memorandum in general meeting — but only if its articles authorise it to do so. That "if authorised by its articles" is a real precondition, not a formality. If the company's articles of association do not contain the power to increase capital, the company must first alter the articles by special resolution to insert that power, and only then increase the capital. Most standard articles include the power, but older or custom-drafted articles sometimes do not — so it is the first thing to check.
The steps — and the form that is not required
Assuming the articles permit it, the increase runs through a short, clean sequence:
- Board meeting. The board approves the proposed increase and the alteration of the capital clause, and calls a general meeting of the members.
- General meeting — ordinary resolution. The members pass an ordinary resolution (a simple majority) to increase the authorised capital and amend Clause V of the memorandum to the new figure. An increase of authorised capital needs only an ordinary resolution, not a special one.
- File Form SH-7 within 30 days. The company files Form SH-7 with the Registrar within 30 days of the resolution, attaching the amended memorandum and the resolution, and pays the additional stamp duty and registration fees on the increased capital.
Here is the point that trips people up: for a private company increasing its authorised capital by ordinary resolution, Form MGT-14 is not required — SH-7 is the only ROC filing. That is different from the special-resolution filings elsewhere in company law (a preferential allotment, a name change), which do need an MGT-14. The one exception is if you had to alter the articles first to get the power — that alteration is a special resolution and does need an MGT-14 of its own, filed alongside.
The cost scales with the increase — and so does the penalty for being late
Unlike most ROC filings, SH-7 carries a real cost beyond the nominal filing fee: the stamp duty and registration fees are calculated on the amount of the increase, and stamp duty is a state subject, so the figure depends on where your registered office is. A large jump in authorised capital is a meaningful expense, which is why it is worth sizing the increase to the round you are actually doing rather than raising the ceiling arbitrarily high. And being late is not cheap either — under Section 64(2), failing to file SH-7 within 30 days attracts a penalty of ₹500 for every day the default continues, up to a maximum of ₹5,00,000 for the company and ₹1,00,000 for each officer in default.
Raising the ceiling is step one — issuing the shares is step two
The most important thing to understand is that increasing authorised capital and issuing shares are two separate jobs. SH-7 only lifts the ceiling; it does not put shares in anyone's hands. Once the authorised capital is increased, the company still has to actually allot the new shares — as a rights issue, a preferential allotment or a private placement — with its own board and shareholder approvals and its own PAS-3 return of allotment. A funding round therefore usually runs as SH-7 first (make room), then the allotment (fill it). Planning both together, in order, is what keeps a round from stalling at the Registrar.
Where this sits in the company's compliance life
Increasing authorised capital is an alteration of the memorandum, so it belongs to the same family as a change of registered office and a change of name — all of them amend the memorandum and run through the Registrar. It is the natural precursor to issuing new shares, and it sits with the other event-based filings on the Private Limited compliance calendar rather than on the annual cycle of AOC-4 and MGT-7. How much capital headroom a company sets up with in the first place is one of the small decisions that flows from the structure you choose at the start.
How we handle it at RDA, Baner
At RDA Advisory, Baner, we handle capital increases as part of getting a company ready for a funding round — sized to the round, and sequenced correctly. We check the articles actually carry the power (and alter them first if they do not), run the board and shareholder resolutions, file the SH-7 within the 30-day window with the correct stamp duty for your state, and then move straight into the allotment and PAS-3 so the money and the shares land cleanly. Office No. 102, Snehraj Apartment, Baner, Pune 411045 · call +91 77570 45059.
Raising capital soon? Let's make room for it first
Closing an investment, converting notes, or bringing in an equity partner? RDA increases your authorised capital through SH-7 with the right resolutions and stamp duty, then runs the share allotment and PAS-3 so the round completes without stalling at the Registrar. Book a consult at rdatax.in or call +91 77570 45059, or see our ROC and secretarial service. RDA Advisory, Baner, Pune.
Verification note: The requirements described here are based on the Companies Act, 2013 and the rules made under it, as administered by the Ministry of Corporate Affairs (mca.gov.in). The authorised (nominal) share capital is stated in the capital clause of the memorandum and represents the maximum capital a company may issue; paid-up capital is what has actually been issued and paid. Under Section 61(1)(a) a limited company having a share capital may, if authorised by its articles, alter its memorandum in general meeting to increase its authorised share capital — where the articles do not contain that power, they must first be altered by special resolution. An increase of authorised capital is approved by an ordinary resolution, and notice of the alteration is filed with the Registrar in Form SH-7 within thirty days under Section 64, together with the altered memorandum and payment of the applicable stamp duty and registration fees (stamp duty being a State subject). For a private company increasing authorised capital by ordinary resolution, Form MGT-14 is not required, though an alteration of articles by special resolution would require its own MGT-14. Section 64(2) provides that failure to file within thirty days attracts a penalty of five hundred rupees for each day the default continues, subject to a maximum of five lakh rupees for the company and one lakh rupees for each officer in default. Increasing authorised capital does not itself allot shares; a separate allotment with a return in Form PAS-3 is required to issue the shares. Forms, fees, thresholds and time limits are periodically revised by the MCA and the States; confirm the current requirements for your company with your CA or company secretary. This is general information, not legal or professional advice.
