How to Increase Authorised Share Capital of a Company (SH-7 Filing Guide)

How to Increase Authorised Share Capital of a Company (SH-7 Filing Guide)

Picture this: your startup is about to close a new funding round, or you want to bring in a co-founder with a meaningful equity stake, or you simply need to issue more shares to reward an early employee. You go to your accountant excited, and they tell you something deflating - "We can't issue more shares right now. Your authorised capital is already fully used up."

This catches a lot of founders off guard because they assume "authorised capital" and "paid-up capital" are the same thing, and that as long as they have not issued shares up to some vague upper limit, they are fine. In reality, authorised capital is a hard ceiling written into your company's constitutional documents, and if you want to issue more shares than that ceiling allows, you must first formally increase it. This guide explains what that means, why it matters, and exactly how to get it done through Form SH-7 without last-minute funding-round panic.

What is Authorised Share Capital and Why This Matters

Authorised share capital is the maximum amount of share capital that a company is permitted to issue to its shareholders, as stated in its Memorandum of Association (MOA). Think of it as the outer boundary - the company cannot issue shares beyond this limit under any circumstances, no matter how good the opportunity is, until the limit itself is legally increased.

This is different from paid-up capital, which is the actual value of shares that have been issued and paid for by shareholders so far. A company might have an authorised capital of Rs 10 lakh but a paid-up capital of only Rs 5 lakh, meaning it still has "headroom" to issue another Rs 5 lakh worth of shares without needing to touch the authorised limit. Only when the company wants to issue shares beyond its current authorised capital does it need to go through the increase process.

Increasing authorised share capital is a fairly common event in a growing company's life - it typically happens right before a funding round, when bringing in new investors or co-founders, when converting loans into equity, or when the company simply wants more flexibility for future fundraising without needing to repeat this exercise every few months.

Why and When You Need to Increase Authorised Capital

You will typically need to increase your authorised share capital when:

• You are raising a new round of funding and the proposed share issuance would exceed your current authorised limit
• You want to issue sweat equity or ESOPs (employee stock options) to key employees and there isn't enough headroom left
• A co-founder or strategic partner is joining and needs a substantial new allotment of shares
• You are converting convertible instruments (like CCDs or CCPS) into equity shares, and the resulting shares would breach the current ceiling
• You are restructuring the company's capital base ahead of a merger, acquisition, or strategic investment
• Existing shareholders want to bring in additional capital through a rights issue, but the current authorised limit doesn't allow it

It's important to plan this in advance because increasing authorised capital is not instantaneous - it requires board approval, shareholder approval, and a filing with the ROC, all before you can actually allot the new shares. If you leave this until the last day before a funding round is meant to close, you risk delaying the entire transaction.

Prerequisites, Approvals and Eligibility

Before initiating the increase, check the following:

• Your Articles of Association (AOA) must permit an increase in authorised capital. Most standard AOAs include this power, but it's worth double-checking, especially for older companies with customised articles. If the AOA does not allow it, you will need to alter the AOA first.
• A board resolution must be passed approving the proposal to increase authorised capital and to call a general meeting (or use other applicable methods) for shareholder approval.
• Shareholder approval by ordinary resolution is required under Section 61 of the Companies Act, 2013, since increasing authorised capital is treated as an alteration of the capital clause of the MOA. Some companies choose to pass this via an Extraordinary General Meeting (EGM), while others may do it as part of a properly constituted meeting with adequate notice.
• Sufficient notice period for the general meeting must be given to shareholders - generally at least 21 clear days for an EGM, unless shorter notice is agreed to by the required majority of shareholders as permitted under the Act.
• Check whether there are any existing shareholder agreements or investor rights (such as anti-dilution or pre-emption clauses) that need to be factored in before the increase and subsequent allotment.

Documents Required

To increase authorised share capital, keep the following ready:

• Notice of the board meeting and board resolution approving the proposal
• Notice of the general meeting (EGM or AGM) along with the explanatory statement under Section 102, clearly describing the proposed increase
• Ordinary resolution passed by shareholders approving the increase in authorised capital and the corresponding alteration of the MOA's capital clause
• Altered Memorandum of Association reflecting the new authorised capital amount
• Altered Articles of Association, if any related changes are needed
• Minutes of the general meeting where the resolution was passed
• Digital Signature Certificate (DSC) of the authorised signatory
• Certificate from a practising professional (CA/CS/CMA) certifying the compliance, where applicable
• Copy of the latest MGT-7/MGT-7A (annual return) and financial statements, sometimes requested as supporting documents to confirm existing capital structure

Step-by-Step Process and MCA Forms

Here is the process broken down into clear numbered steps:

1. Check the Articles of Association to confirm the company has the power to increase authorised share capital. If not, first pass a special resolution to alter the AOA.

1. Convene a board meeting and pass a board resolution approving the proposal to increase authorised capital, deciding the new capital amount, and fixing the date, time and venue for a general meeting.

1. Issue notice for the general meeting (EGM or AGM) to all shareholders, directors and auditors, with the required notice period and an explanatory statement describing why the increase is needed.

1. Hold the general meeting and get shareholders to pass an ordinary resolution approving the increase in authorised share capital and the consequent alteration of the capital clause in the MOA.

1. File Form SH-7 with the Registrar of Companies within 30 days of passing the ordinary resolution. This form must be accompanied by the altered MOA, the notice of the general meeting, the explanatory statement, and the certified true copy of the ordinary resolution.

1. Pay the requisite government fee for the incremental authorised capital, calculated based on the difference between the old and new authorised capital slabs.

1. Await ROC approval. Once the Registrar processes the form and it is approved, the company's Master Data on the MCA portal is updated to reflect the new, higher authorised capital.

1. Proceed with share allotment, if that was the purpose of the increase - this typically involves a separate process (like filing Form PAS-3 for allotment) once the increased authorised capital is in place.

1. Update internal records - the Register of Members, statutory registers, share certificates, and cap table - to reflect the new authorised capital and any subsequent allotments.

It's worth stressing again: SH-7 must be filed within 30 days of passing the ordinary resolution. This is a hard deadline, and delayed filing attracts additional fees that increase with time.

Cost and Government Fees in 2026

The government fee for increasing authorised share capital via SH-7 is calculated on a slab basis, based on the incremental amount (i.e., the difference between your new and old authorised capital), not the entire new capital figure. As a general guide:

• For smaller increases (say, moving from a modest base like Rs 1 lakh to Rs 5-10 lakh), the fee is usually a modest few thousand rupees
• As the incremental capital increases into higher slabs (lakhs to crores), the fee rises proportionately, and can become a meaningful cost for companies planning very large capital increases
• There is generally also a flat additional fee component layered on top of the slab-based fee in many cases
• If SH-7 is filed after the 30-day window, additional/late fees apply, calculated per day or per slab of delay, and these can add up quickly

Because MCA fee slabs are revised periodically and vary based on the specific capital bands your company falls into, you should always verify the current rate on the MCA fee calculator or with a professional before budgeting for this filing. Separately, if you also need to alter the Articles of Association or engage a CA/CS to draft resolutions and certify the filing, factor in a professional service fee on top of the government fee.

Timeline

A realistic sense of how long the whole exercise takes:

• Reviewing AOA and preparing board resolution: 1-2 days
• Notice period for the general meeting: generally at least 21 clear days for an EGM (this is usually the longest single wait in the process, unless shorter notice is validly agreed to by the requisite majority)
• Holding the general meeting and passing the resolution: 1 day
• Filing SH-7 and MCA processing: typically a few days to about two weeks, depending on whether the form is processed on an STP basis or sent for review

Altogether, if you plan well and don't need to shorten the meeting notice, expect the full process - from decision to an updated MCA Master Data record - to take roughly 3 to 5 weeks. If your AOA does not currently permit the increase, add extra time for the special resolution to alter the articles as well.

Key Distinctions: Authorised Capital vs Paid-Up Capital vs Issued Capital

Founders often mix up these terms, so here's a clear breakdown:

• Authorised capital is the maximum limit up to which a company can issue shares, as stated in the MOA. It is a ceiling, not an actual amount raised.
• Issued capital is the portion of authorised capital that the company has actually offered to shareholders for subscription.
• Subscribed capital is the part of the issued capital that shareholders have actually agreed to take up.
• Paid-up capital is the actual amount shareholders have paid to the company against the shares subscribed. This is usually what people mean when they casually say "capital" in a business conversation.

The relationship is simple: Paid-up capital ≤ Subscribed capital ≤ Issued capital ≤ Authorised capital. You only need to go through the SH-7 process when your issuance plans would push the paid-up (or issued) capital beyond the current authorised limit. If you have unused headroom between your paid-up capital and authorised capital, you can issue more shares (through a separate allotment process) without increasing authorised capital at all.

Common Mistakes to Avoid

• Waiting until the funding round is about to close to start the process, not realising the general meeting notice period alone can take three weeks
• Not checking the Articles of Association first, and discovering mid-process that the AOA needs to be altered too, adding extra steps and time
• Filing SH-7 late, past the 30-day window from the resolution date, resulting in avoidable additional fees
• Miscalculating the incremental fee by applying the fee slab to the entire new authorised capital instead of just the increase
• Forgetting to also update the Articles of Association if the AOA has a specific capital clause that needs separate alteration
• Not passing a valid explanatory statement under Section 102 along with the general meeting notice, which can render the resolution technically defective
• Confusing authorised capital increase with actual share allotment - increasing the limit does not by itself issue any shares; a separate allotment process and PAS-3 filing is still needed
• Overlooking investor consent requirements under existing shareholders' agreements before proceeding with the increase
• Not updating the Register of Members and cap table promptly after the increase and subsequent allotment

Frequently Asked Questions

What is the difference between authorised capital and paid-up capital?

Authorised capital is the maximum limit of shares a company is permitted to issue, as fixed in its Memorandum of Association. Paid-up capital is the actual amount shareholders have paid the company for shares already issued to them. A company can increase paid-up capital (through allotment) up to its authorised limit without any SH-7 filing; beyond that, the authorised limit itself must first be increased.

How long does it take to increase authorised share capital?

From board approval to an updated MCA record, the process typically takes around 3 to 5 weeks, largely because a general meeting requires at least 21 clear days' notice to shareholders. If the Articles of Association also need to be altered first, add some additional time for that step.

Is shareholder approval mandatory to increase authorised capital?

Yes. Under Section 61 of the Companies Act, 2013, increasing authorised share capital requires an ordinary resolution passed by shareholders in a general meeting, in addition to the board's approval. This cannot be done through a board resolution alone.

What happens if SH-7 is not filed within 30 days of the resolution?

The company will need to pay additional government fees calculated on the delay, and non-filing keeps the MCA's Master Data record inconsistent with the company's actual constitutional documents, which can create problems during due diligence, funding rounds, or other regulatory filings.

Does increasing authorised capital automatically issue new shares to anyone?

No. Increasing authorised capital only raises the ceiling within which shares can be issued. To actually allot new shares to specific shareholders or investors, the company must go through a separate share allotment process, typically involving a board resolution, a valuation (if applicable), and filing of Form PAS-3.

Can a company increase its authorised capital multiple times?

Yes, there is no restriction on how many times a company can increase its authorised capital over its lifetime, as long as each increase follows the proper process - board approval, shareholder ordinary resolution, and timely SH-7 filing with the requisite fee.

Do we need to alter the Memorandum of Association every time we increase authorised capital?

Yes. The capital clause of the Memorandum of Association states the authorised capital figure, so every increase requires this clause to be formally altered and the updated MOA to be filed along with Form SH-7.

What is the government fee based on when increasing authorised capital?

The fee is generally calculated on the incremental amount - that is, the difference between the new and the old authorised capital - rather than on the total new authorised capital figure. Since fee slabs are revised periodically, it's important to verify the current rate before filing.

How Legal Suvidha Makes This Effortless

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