A practical 2026 guide to authorised vs paid-up capital — meanings, the SH-7 process to increase authorised capital, stamp duty, and financial impact.
Authorised Capital vs Paid-Up Capital: Meaning, How to Increase Authorised Capital, and Impact on Your Company
Founders frequently mix up two terms that appear on every company registration certificate — authorised capital and paid-up capital. They sound similar, but they mean very different things, and confusing them can lead to compliance mistakes, mispriced share allotments, or an unpleasant surprise when trying to bring in new investors or issue more shares than your company is legally permitted to.
This guide breaks down what authorised and paid-up capital actually mean, how they are different, the step-by-step process to increase authorised capital using Form SH-7, the stamp duty angle, and how capital structure decisions genuinely impact your company's finances and fundraising ability. Fees and timelines are hedged throughout, since government charges and stamp duty rates vary by state and are revised periodically.
What Is Authorised Capital?
Authorised capital (also called nominal capital or registered capital) is the maximum amount of share capital that a company is legally permitted to issue to its shareholders, as stated in the Capital Clause of its Memorandum of Association (MOA). It represents a ceiling, not an actual amount received by the company.
Key characteristics:
- It is fixed at the time of incorporation and stated in the MOA.
- A company cannot issue shares beyond its authorised capital without first amending the MOA to increase this limit.
- It does not represent money the company actually has — it is purely a legal cap on how much share capital can eventually be issued.
- Government incorporation fees, and in many states the stamp duty payable at incorporation, are often linked to the authorised capital amount, which is why many founders start with a conservative figure and increase it later as needed.
What Is Paid-Up Capital?
Paid-up capital is the actual amount of money that shareholders have paid to the company in exchange for shares that have been issued and allotted to them. It is always less than or equal to the authorised capital — it can never exceed it.
Key characteristics:
- It reflects real capital infusion into the company's bank account, in exchange for equity.
- It is disclosed in the company's balance sheet under shareholders' equity/share capital.
- It directly affects the company's net worth calculation, which matters for eligibility under various government schemes, tenders, and certain regulatory thresholds.
- A company can have, for example, an authorised capital far higher than its current paid-up capital, giving it room to issue more shares in the future without further MOA amendments — right up to that authorised ceiling.
Authorised Capital vs Paid-Up Capital: The Core Difference
The simplest way to understand the difference is this: authorised capital is the maximum limit set in the company's constitutional document, while paid-up capital is the actual amount raised from shareholders against shares actually issued and paid for, within that limit.
A few practical distinctions worth noting:
- Nature: Authorised capital is a legal ceiling; paid-up capital is an actual, realised financial figure.
- Change process: Increasing authorised capital requires amending the MOA through a shareholder resolution and an ROC filing. Increasing paid-up capital (within the existing authorised limit) simply requires issuing and allotting new shares, followed by the relevant filing, without necessarily needing to alter the authorised capital first — as long as headroom exists.
- Cost implications: Increasing authorised capital typically triggers additional government fees and stamp duty (state-dependent). Issuing shares within the existing authorised limit generally involves comparatively lower incremental statutory cost, mainly limited to allotment-related filings.
- Balance sheet impact: Only paid-up capital (and related share premium, if shares are issued above face value) appears as actual capital received on the balance sheet. Authorised capital is disclosed as a note/ceiling, not as received funds.
- Investor perception: Investors look primarily at paid-up capital, valuation, and shareholding pattern to assess a company's actual financial position — authorised capital alone tells them very little about the company's real financial strength.
Why This Distinction Matters
- Fundraising planning: Before closing a funding round, you must check whether your authorised capital has enough headroom to issue the new shares being allotted to investors. If not, you need to increase authorised capital first, which adds a step (and time) to the closing process.
- ESOP pools: When setting aside an Employee Stock Option Plan pool, companies need to ensure authorised capital can absorb the additional shares that may eventually be issued upon option exercise.
- Compliance accuracy: Filing annual returns and financial statements with inconsistent capital figures (for example, showing paid-up capital exceeding authorised capital) can trigger scrutiny or rejection by the ROC.
- Bank and tender eligibility: Some banks, government tenders, and certifications reference paid-up capital or net worth thresholds, so understanding the distinction helps you present the right figure in the right context.
- Cost management at incorporation: Since many states link registration fees and stamp duty to authorised capital, founders often start conservatively and increase authorised capital later as the business genuinely needs more capital headroom, rather than over-provisioning from day one.
How to Increase Authorised Capital: Step-by-Step (Form SH-7)
Increasing authorised capital is a fairly structured process. Here is the general sequence:
- Check the AOA for enabling provisions: The Articles of Association must permit the company to increase its authorised share capital. If the AOA is silent or restrictive, it may need to be amended first or simultaneously.
- Convene a board meeting: The board passes a resolution approving the proposed increase and recommending it to shareholders, and fixes the date, time, and venue (or mode) of the general meeting.
- Issue notice for a general meeting: Notice is sent to all shareholders with the proposed resolution (usually an ordinary resolution is sufficient for simply increasing authorised capital, though this should be confirmed against the company's AOA and current law).
- Pass the resolution at the general meeting: Shareholders approve the increase in authorised capital, and, if needed, a corresponding amendment to the capital clause of the MOA.
- File Form SH-7 with the Registrar: This is the specific e-form used to notify the ROC of an increase in authorised share capital. It must be filed within the statutory time limit from the date the resolution is passed, along with:
- Certified true copy of the ordinary/special resolution
- Altered MOA (capital clause) and, if applicable, altered AOA
- Notice of the general meeting
- Any other supporting documents as prescribed
- Pay the applicable government fee and stamp duty at the time of filing, calculated based on the incremental increase in authorised capital and the state where the registered office is located.
- Receive ROC approval: Once the Registrar processes and approves Form SH-7, the company's authorised capital officially stands increased, and the updated MOA reflects the new capital clause.
After this, if the company also wants to actually issue new shares (increase paid-up capital), it proceeds separately with a share allotment process — such as a rights issue, private placement, or preferential allotment — followed by filing the relevant allotment form (commonly Form PAS-3) with the Registrar.
Stamp Duty on Increase in Authorised Capital
Stamp duty is a state subject in India, which means the rate and method of calculation for stamp duty on an increase in authorised capital varies from state to state. Some general points to keep in mind:
- Stamp duty is typically calculated on the incremental amount of authorised capital being added, not the entire new authorised capital figure (since duty was already paid on the earlier portion at the time it was authorised).
- Rates and slabs differ significantly by state, and some states have caps on the maximum stamp duty payable, while others do not.
- Stamp duty is generally payable alongside or shortly after the ROC filing process, and proof of payment may need to be submitted as part of the compliance record.
- Because this is one of the more variable costs in the entire process, it is important to get a state-specific estimate from your CA/CS before finalising the capital increase amount, especially for larger increases.
Documents Required for Increasing Authorised Capital
- Certified copy of the board resolution approving the proposal
- Notice of the general meeting along with the explanatory statement
- Certified copy of the shareholders' resolution passed at the general meeting
- Altered Memorandum of Association reflecting the new capital clause
- Altered Articles of Association, if any AOA provisions needed amendment
- Digital Signature Certificate of the authorised signatory for e-filing
- Proof of payment of stamp duty, as applicable in the relevant state
Impact on Company Finances
- Improved fundraising flexibility: Adequate authorised capital headroom means the company can move quickly on a funding round or ESOP allocation without a separate capital-increase step slowing things down.
- No direct cash impact from increasing authorised capital alone: Simply increasing the authorised limit does not bring any new cash into the company — cash only comes in when shares are actually issued and paid for (increasing paid-up capital).
- Net worth and borrowing capacity: Since paid-up capital (along with reserves) forms part of net worth, companies looking to improve their borrowing eligibility or meet net worth criteria for tenders/registrations need to focus on actually increasing paid-up capital, not just the authorised ceiling.
- Dilution considerations: Every time new shares are issued to raise paid-up capital, existing shareholders' percentage ownership gets diluted unless they also participate proportionately, so capital planning should always be discussed alongside cap table impact.
- Cost planning: Because authorised capital increases attract government fees and stamp duty, sudden or frequent increases can add avoidable statutory costs; more thoughtful, milestone-based capital planning tends to be more cost-efficient.
Fees and Timelines (2026, Indicative)
- Government fee for filing Form SH-7 is generally based on a slab structure linked to the amount of the increase in authorised capital, and can range from a modest sum for small increases to a considerably higher amount for large increases.
- Stamp duty varies by state and is calculated on the incremental capital, so it should always be checked against the current schedule of the specific state where the registered office is located.
- Professional fees for drafting resolutions, altered MOA/AOA, and managing the SH-7 filing are typically charged separately, often as a fixed package covering the entire increase process.
- Processing time for SH-7 approval is often a matter of a few days to a couple of weeks, depending on document accuracy and current ROC processing volumes; complex cases or additional ROC queries can extend this.
Since these figures are revised periodically and vary by state, always get a current, state-specific quote from your CA/CS before initiating the process.
Common Pitfalls to Avoid
- Issuing shares beyond authorised capital without first increasing it — this is not permitted and any such allotment can be legally invalid until regularised.
- Forgetting to check the AOA for enabling provisions before attempting the increase, which can cause last-minute filing delays.
- Underestimating stamp duty in high-duty states, especially for large capital increases, leading to budget surprises.
- Confusing authorised capital increase with actual fundraising — increasing the ceiling does not itself bring in any money; a separate share allotment step is needed to actually receive funds.
- Delaying the SH-7 filing past the statutory deadline after the resolution is passed, which can require additional compliance steps to regularise.
- Not aligning the capital increase timeline with investor closing dates, causing avoidable delays in a funding round.
- Ignoring the impact on existing shareholders' dilution when planning a large fresh issue of shares against the newly increased authorised capital.
FAQs
Q1. Can paid-up capital ever exceed authorised capital?
No. Paid-up capital can never exceed authorised capital. If a company wants to issue shares that would push paid-up capital beyond the current authorised limit, it must first increase authorised capital through the process described above.
Q2. Is increasing authorised capital the same as raising funds?
No. Increasing authorised capital only raises the legal ceiling on how many shares can be issued. Actual funds come into the company only when shares are issued and shareholders pay for them, which increases paid-up capital.
Q3. What is Form SH-7 used for?
Form SH-7 is the e-form filed with the Registrar of Companies to notify an increase in a company's authorised share capital, along with the resolution and altered MOA/AOA as supporting documents.
Q4. Does every state charge the same stamp duty on capital increase?
No. Stamp duty on increase in authorised capital is a state subject, and rates, slabs, and caps vary from state to state. Always check the specific rate applicable in the state where your registered office is located.
Q5. What resolution is needed to increase authorised capital?
This is typically approved through an ordinary resolution of shareholders, though companies should check their specific AOA provisions and current law, since some articles may prescribe additional requirements.
Q6. Can authorised capital be decreased later if it is not being used?
In principle, a company can reduce its capital, but this is a more complex process governed by specific provisions of the Companies Act, often requiring additional approvals, and is far less common than increasing it. It should be evaluated carefully with your CA/CS.
Q7. Do I need to increase authorised capital every time I bring in a new investor?
Only if the new shares being issued to the investor, when added to your existing paid-up capital, would exceed your current authorised capital. If sufficient headroom already exists, you can proceed directly with the share allotment.
Q8. How is authorised capital shown in company documents?
It is stated in the Capital Clause of the Memorandum of Association and also disclosed in the company's Certificate of Incorporation and annual filings, distinct from the paid-up capital figure shown in the balance sheet.
Why Founders Choose Legal Suvidha
For 14 years we have taken founders end-to-end — from choosing the right structure and incorporating, to first-year compliance, funding readiness, and ongoing ROC/GST/tax filings — so you never have to switch providers as you grow.
- One team for the whole journey — start, launch, post-launch and every annual filing after.
- Fixed, all-inclusive pricing — professional plus government fees itemised, no hidden charges.
- A dedicated CA/CS who owns your case and does not disappear after payment.
- 6,000+ founders served, 4.9/5 rating, DPIIT-recognised, 100% online.
Talk to a Legal Suvidha expert today for a free consultation and an exact, transparent quote on WhatsApp (8130645164).
