How to Increase Authorised Share Capital in India: A Complete Guide

A growing business often needs more capital to fuel its expansion. But what happens when your company has already reached the maximum limit of shares it can legally issue? This limitation is set by the authorised share capital mentioned in your company’s Memorandum of Association (MoA) when your business plans to raise additional funds for purposes like launching new projects, expanding operations, or bringing in fresh investors, increasing the authorised capital becomes essential. In this comprehensive guide, we walk you through the full process of increasing your company’s authorised share capital. Every step complies with the Companies Act, 2013, and the latest procedures laid out by the Ministry of Corporate Affairs (MCA). By the end, you will clearly understand the legal formalities, required documents, and filing obligations involved, so you can confidently power your business into its next stage of growth.

Understanding Authorised Share Capital: The Foundation for Growth

Authorised share capital sets the upper limit for how much equity a company can issue. Understanding this concept is essential for managing growth, attracting investment, and staying legally compliant.

What is Authorised Share Capital?

Authorised share capital is the maximum amount of capital that a company is legally permitted to issue to its shareholders. This limit is clearly stated in the company's Memorandum of Association, which serves as its constitutional document. To understand this better, imagine a water tank. The authorised capital is like the maximum capacity of the tank. You can pour water into it only up to that limit. If you want to store more water, you need a bigger tank. In the same way, if a company wants to issue more shares, it must first increase its authorised capital.

This concept is closely related to three other terms that define a company's share structure. Issued capital is the portion of authorised capital that the company has actually offered to investors. Subscribed capital is the part of the offer that investors have agreed to take. Paid-up capital refers to the amount investors have paid for the shares they subscribed for. Together, these terms explain how much of the authorised capital is being actively used and how much room remains for future growth.

Why Would a Company Need to Increase Its authorised Share Capital?

As companies grow, they often require more funds, more flexibility, or need to meet strategic goals. Increasing authorised share capital becomes essential in the following situations:

• Funding Business Expansion & New Projects
  Whether it's entering new markets, launching products, or scaling operations, more capital is often required, and issuing fresh equity can help.
• Onboarding New Investors
  Startups and growing companies often bring in angel investors, venture capitalists (VCs), or private equity. To allot shares to them, the authorised share capital must be sufficient.
• Issuing Shares to Employees (ESOPs)
  Many companies offer Employee Stock Option Plans (ESOPs) as part of compensation. If your authorised capital doesn’t allow room for these shares, it must be increased.
• Meeting Regulatory Requirements or Improving Creditworthiness
  In some cases, increasing capital may be a regulatory prerequisite, especially in sectors like banking or NBFCs. A higher authorised capital also signals financial strength, boosting the company’s credit profile.

The Step-by-Step Procedure to Increase Authorised Share Capital

Increasing a company’s authorised share capital is not just a financial decision — it is a legal procedure requiring multiple levels of approval and filings. Below is a comprehensive step-by-step guide for private limited companies and public limited companies under the Companies Act, 2013.

Step 1: Review the Articles of Association (AoA)

Before initiating the process, examine the company’s Articles of Association (AoA) to confirm if it allows increasing the authorised share capital.

• If the AoA already contains enabling provisions, the process can proceed directly to passing resolutions.
• If the AoA does not permit such an increase, the company must first amend the AoA. This requires passing a Special Resolution under Section 14 of the Companies Act, 2013, at a general meeting of shareholders.
• Amendment to AoA must include a clause permitting alterations to the authorised capital.

This step is critical because the MoA and AoA together form the constitutional documents of the company, and no action beyond their scope can be legally undertaken.

Step 2: Convene a Board Meeting

A duly convened board meeting is necessary to initiate the formal process. The board must:

• Approve the proposal to increase authorised share capital
• Approve the notice calling an Extraordinary General Meeting (EGM) of the shareholders
• Fix the date, time, and venue of the EGM
• Approve the explanatory statement accompanying the notice, as required under Section 102 of the Companies Act, 2013

The explanatory statement must disclose all material facts and reasons for the proposed increase, ensuring shareholder transparency.

Step 3: Issue EGM Notice to Shareholders

Send the EGM notice to all members, directors, and auditors of the company at least 21 clear days before the meeting, unless a shorter notice is consented to by the required majority. The notice must include:

• The agenda
• Text of the proposed resolutions
• Explanatory statement under Section 102

In case of unlisted public or private companies, notice can be sent via email or hand delivery if permitted in the Articles.

Step 4: Hold the Extraordinary General Meeting (EGM)

At the EGM, the shareholders must:

• Pass an Ordinary Resolution to increase the authorised share capital, as per Section 61(1)(a) of the Companies Act, 2013
• If applicable, pass a Special Resolution to amend the AoA (in case enabling provisions were absent initially)

The Capital Clause of the Memorandum of Association (MoA) must be amended to reflect the new authorised capital.

Ensure that quorum is present and proper minutes are recorded.

Step 5: File Forms with the Registrar of Companies (RoC)

After the resolutions are passed, the company must file statutory forms with the RoC within the prescribed timelines:

• e-Form SH-7 must be filed within 30 days of passing the Ordinary Resolution for increasing authorised capital
• e-Form MGT-14 must be filed within 30 days if a Special Resolution is passed to amend the AoA (required only if the AoA amendment was necessary)

Documents required for SH-7 filing:

• Certified true copy of the Ordinary Resolution
• Altered MoA
• Notice of the EGM and explanatory statement
• Board resolution
• Altered AoA (if applicable)
• Digital signature of the director/authorized signatory

Ensure correct payment of MCA filing fees based on the new authorised capital slab.

Step 6: Pay Stamp Duty and MCA Filing Fees

Stamp duty must be paid on the increased amount of authorised share capital, as per the respective State’s Stamp Act. This is in addition to the standard MCA fees.

• MCA fees for SH-7 are slab-based and vary by the company’s type (private, public, OPC) and the capital amount.
• Failure to pay the correct stamp duty may lead to rejection of the form or penalties.

Note: In states like Maharashtra, stamp duty must be paid via the Government Receipt Accounting System (GRAS).

Step 7: Approval and Reflection on MCA Portal

Once the Registrar of Companies verifies and approves the filed forms and documents:

• The company’s Master Data on the MCA portal will be updated to reflect the increased authorised share capital.
• Only after this update can the company legally issue shares beyond the previously authorised capital limit.

Practical Tip

Even after approval, issuance of fresh shares must be done through a separate process, such as private placement, rights issue, or ESOP allocation, following the applicable compliance procedures. Merely increasing authorised capital does not automatically lead to the issuance of shares.

Documents and Information Required to Increase Authorised Share Capital

Before filing the necessary forms with the Registrar of Companies (RoC), the company must prepare and collate a specific set of documents. These documents are essential for verifying the resolutions passed and validating the amendments made to the company’s charter documents.

Here’s a list of the key documents and information required:

1. Altered Memorandum of Association (MoA)

• The revised Memorandum must reflect the updated capital clause, showing the new authorised share capital.
• This is a critical document that legally establishes the revised capital limit of the company.

2. Altered Articles of Association (AoA), if Amended

• If the existing AoA did not allow an increase in authorised share capital, it must be amended through a special resolution.
• The altered AoA must be filed along with Form MGT-14.

3. Certified True Copy of the Board Resolution

• This is the resolution passed during the board meeting, where the proposal to increase capital was approved, and the EGM was scheduled.
• It must be signed by a director or authorised officer of the company.

4. Certified True Copy of the Ordinary Resolution Passed at the EGM

• This includes the shareholders’ approval for increasing authorised capital and, if required, amending the MoA.
• The resolution must be properly certified and enclosed with the SH-7 form.

5. Notice of EGM and Explanatory Statement

• A copy of the notice issued to shareholders for the EGM, along with the explanatory statement under Section 102 of the Companies Act, 2013, must be attached.
• This ensures that shareholders were adequately informed before passing the resolution.

6. Digital Signature Certificate (DSC) of a Director

• Filing of SH-7 and MGT-14 on the MCA portal requires authentication using a valid DSC of an authorised director or signatory.
• Ensure the DSC is active and registered on the MCA portal.

Common Mistakes to Avoid

1. Missing the 30-day filing deadline
   After passing the resolution in the Extraordinary General Meeting (EGM), companies are required to file Form SH-7 with the Registrar of Companies (RoC) within 30 days. Missing this statutory deadline can lead to late filing fees, penalties, and delays in the legal recognition of the increased authorised share capital. In some cases, prolonged non-compliance can also affect the company’s ability to raise funds or issue shares.
2. Incorrectly drafting resolutions
   The resolutions passed by the board and shareholders must be clear, precise, and legally valid. Errors in the wording of resolutions, missing statutory references (such as Section 61 for capital increase or Section 14 for AoA amendment), or failing to mention specific clauses being altered in the Memorandum of Association can cause the Registrar to reject the filing. This can result in delays, repeated filings, and even scrutiny from regulatory authorities.
3. Not checking AoA provisions first
   Before initiating the process, it is essential to review the Articles of Association (AoA) to confirm whether they permit an increase in authorised share capital. If such a provision is absent and the company proceeds without amending the AoA, the entire process becomes legally invalid. Amending the AoA requires a special resolution and must be completed before filing for the increase. Skipping this step is a foundational error that can lead to the rejection of the entire application.

Expert Commentary & Pro-Tips for Founders

Increasing authorised share capital requires more than just paperwork. These expert tips will help founders navigate the process efficiently and stay fully compliant.

Plan Capital Increase Strategically Before Fundraising

Founders should always align the increase in authorised share capital with their fundraising plans. If the authorised capital is not sufficient at the time of investment, the company cannot issue new shares to incoming investors. This can lead to delays in closing deals and might affect investor confidence. Planning the increase in advance ensures that the capital structure supports immediate and future funding needs.

Engage Corporate Lawyers or Company Secretaries to Ensure Compliance

It is highly recommended to consult corporate legal professionals or qualified company secretaries when undertaking any alteration in the capital structure. They assist in drafting precise resolutions, verifying compliance with the Companies Act, and managing proper filing with the Registrar of Companies. Professional guidance reduces the risk of errors and ensures timely approvals.

Always Refer to the Official MCA Website for Updates

The regulatory environment for corporate filings is dynamic. Founders and compliance teams should regularly refer to the official website of the Ministry of Corporate Affairs (www.mca.gov.in) to stay updated on changes in rules, forms, deadlines, or filing fees. Depending on unofficial or outdated information can lead to procedural non-compliance.

Conclusion

Increasing authorised share capital is an important step for any company planning to expand its operations, raise investment, or meet regulatory requirements. It allows a company to issue additional shares as needed and provides the flexibility to pursue future opportunities. By understanding the legal process and ensuring timely compliance, businesses can avoid unnecessary delays, penalties, and complications.

To carry out this process smoothly, it is recommended to consult a corporate lawyer or company secretary through Rest The Case. With expert support, companies can ensure accurate documentation, correct filings, and full compliance with the provisions of the Companies Act.

For more insights, visit the Rest The Case platform to read related articles on topics such as the types of share capital, how to issue ESOPs legally, and the steps involved in amending company documents. These resources can help you make better decisions and prepare your business for future growth.