Increase Authorised Share Capital: Process, Form SH-7 & Stamp duty

Authorised share capital is the ceiling on how many shares a company is legally permitted to issue, and it is fixed at incorporation, usually at a low figure such as ₹1 lakh or ₹10 lakh. Every funding round, ESOP pool, bonus issue or debt to equity conversion that pushes total share issuance past that ceiling first requires the ceiling itself to be raised. That raise is a formal event under the Companies Act, 2013, involving a shareholder resolution, a Memorandum of Association amendment, a Registrar of Companies filing on Form SH-7, and a state stamp duty payment that varies sharply by the state of registration. Get the sequence or the numbers wrong and the fundraise timeline slips, because shares cannot be allotted beyond the existing ceiling until the Registrar approves the increase.

How do you increase the authorised share capital of a company in India

A company increases authorised share capital under Section 61(1)(a) of the Companies Act, 2013, by passing an ordinary resolution at a general meeting, provided the Articles of Association permit it. The company then alters Clause V of the Memorandum of Association and files Form SH-7 with the Registrar of Companies within 30 days of the resolution, along with the ROC fee differential and state stamp duty on the incremental capital.

What is authorised share capital and when does a company need to increase it

Authorised share capital, defined under Section 2(8) of the Companies Act, 2013, is the maximum value of shares a company may issue to its shareholders, as stated in Clause V of the Memorandum of Association. It is a ceiling, not a target. A company can operate for years with a large authorised capital and a small paid-up capital, and the increase does not by itself issue a single share or change ownership.

The trigger is almost always a share issuance event that would breach the existing ceiling. Common scenarios include:

• A priced equity round or SAFE conversion where the incoming investment, once converted to shares, would push total issued shares past the authorised limit.
• Creation or expansion of an ESOP pool, which under Section 62(1)(b) needs headroom in authorised capital for the full scheme, not just the immediate grant tranche.
• A bonus issue or rights issue that increases the number of shares in circulation.
• Conversion of compulsorily convertible debentures or preference shares into equity.
• A merger or demerger where shares are issued as consideration to the shareholders of the transferor company.

Companies that incorporate with authorised capital set equal to the founding paid-up capital, commonly ₹1 lakh, run into this within the first year of any real fundraising. Treelife’s guidance on drafting the Memorandum of Association at incorporation covers this exact trade-off in more detail, and it is worth reading before the first round rather than after.

Founders setting up a company that expects to raise institutional capital within 12 to 18 months should size authorised capital ahead of need rather than matching it to paid-up capital at incorporation. Read Treelife’s guide to structuring the Memorandum of Association for how the capital clause is drafted to absorb at least one funding round without a fresh SH-7.

Authorised capital vs issued, subscribed and paid-up capital

Authorised capital is the ceiling set in the Memorandum, issued capital is the portion of that ceiling actually offered to shareholders, subscribed capital is the part of the issued capital that shareholders have agreed to take up, and paid-up capital is the part of the subscribed capital actually paid for. Increasing authorised capital changes only the first figure. The other three change only when shares are actually allotted under Section 62 and reflected in Form PAS-3.

This distinction matters in practice because founders sometimes conflate a capital increase with a fundraise closing. A company can raise its authorised capital to ₹10 crore in anticipation of a round and still show ₹1 lakh of paid-up capital on its balance sheet for months afterward, if the allotment has not yet happened. Investors reading a cap table or a balance sheet extract, and auditors preparing financial statements, look at paid-up capital for ownership and net worth purposes, not authorised capital. Authorised capital only tells you the outer limit the company is permitted to grow into.

• Authorised capital: the statutory ceiling, set in Clause V of the Memorandum, changed only through Section 61 and Form SH-7.
• Issued capital: the portion of authorised capital the company has offered to subscribers, through a rights issue, private placement or ESOP exercise.
• Subscribed capital: the portion of issued capital that investors have formally agreed to take, evidenced by the allotment resolution.
• Paid-up capital: the portion of subscribed capital actually received in cash or kind, recorded in the balance sheet and reported in Form PAS-3 and the annual return.

Legal basis for increasing authorised share capital under the Companies Act, 2013

Section 61(1)(a) of the Companies Act, 2013 permits a limited company to increase its authorised share capital by any amount, provided the Articles of Association authorise the alteration. There is no statutory ceiling on the amount of the increase or on how many times a company may increase it.

Three sections work together in this process. Section 61 grants the power to increase capital by ordinary resolution. Section 13 governs alteration of the Memorandum of Association, since Clause V must be amended to reflect the new figure. Section 14 comes into play only if the Articles of Association do not already contain an enabling clause for capital alteration, in which case the Articles must first be amended by special resolution before the Section 61 increase can proceed.

Most companies incorporated using the standard Table F format articles already carry this enabling clause, so the Section 14 step is rarely needed in practice. It becomes relevant for older companies incorporated under the Companies Act, 1956, or companies that adopted heavily customised articles at incorporation, where the capital alteration power was never expressly included.

• Section 61(1)(a): power to increase authorised capital, exercised by ordinary resolution.
• Section 13: alteration of the Memorandum of Association, Clause V specifically.
• Section 14: alteration of the Articles of Association, needed only if the enabling clause is absent, and requires a special resolution plus a separate Form MGT-14.
• Section 64: notice to the Registrar of any alteration of share capital, the statutory basis for the Form SH-7 filing itself.

How does a company increase its authorised share capital step by step

The process runs through five stages: verify the Articles permit the increase, pass a Board resolution recommending it, call a general meeting and pass an ordinary resolution, calculate the ROC fee and stamp duty, and file Form SH-7 within 30 days. Each stage has its own documentation and none can be skipped or reordered.

Stage 1, verify the Articles. Check whether the Articles of Association contain a clause permitting alteration of share capital. Standard Table F articles carry this by default under the model article on alteration of capital. If it is absent, the Articles must be amended first through a special resolution, which triggers a Form MGT-14 filing before SH-7 can be filed.

Stage 2, Board resolution. The Board of Directors meets and passes a resolution recommending the specific increase amount to shareholders, and authorises convening a general meeting. Notice of the Board meeting itself must go to every director at least 7 clear days in advance under Secretarial Standard 1, shorter only in genuine urgency and with the safeguards SS-1 prescribes. The Board also authorises a director or company secretary to sign the SH-7 form and related documents.

Stage 3, general meeting and ordinary resolution. The company issues notice of an Extraordinary General Meeting, or uses the next Annual General Meeting, with a Section 102 explanatory statement setting out the reason for the increase. Notice must be 21 clear days unless shorter notice is consented to by members holding at least 95 percent of the voting power entitled to vote. Shareholders pass the resolution by simple majority, since Section 61 requires only an ordinary resolution.

Stage 4, calculate the cost. Before filing, calculate the ROC fee differential on the new authorised capital slab and the state stamp duty on the incremental increase. Both are covered in detail in the sections below.

Stage 5, file Form SH-7. File the form on the MCA V3 portal within 30 days of the date the resolution was passed, attaching the certified resolution, the explanatory statement, the altered Memorandum of Association, and the MGT-14 SRN if a special resolution for Articles amendment was filed. On the V3 portal, the alteration to Clause V is captured through an e-MOA module that is generated as part of the SH-7 filing itself.

A list of what typically goes wrong at each stage appears further below, but the single most useful discipline is to run the ROC fee and stamp duty calculation before the general meeting, not after, since the resolution should record the exact new capital figure that the company intends to pay for and file.

Form SH-7: filing requirements, documents and timeline

Form SH-7 is the notice of alteration of share capital that a company files with the Registrar of Companies under Section 64, and it must be filed within 30 days of the date the ordinary resolution increasing authorised capital was passed. Beyond a capital increase, the same form also covers consolidation or sub-division of shares, conversion of shares into stock, and cancellation of unissued shares, but the increase in authorised capital is by far its most common use.

The documents required for a straightforward increase are limited:

1. Certified true copy of the ordinary resolution passed at the general meeting.
2. Notice of the general meeting with the Section 102 explanatory statement.
3. Altered Memorandum of Association reflecting the new Clause V figure.
4. Certified true copy of the special resolution and MGT-14 SRN, only if the Articles were amended.
5. Any Central Government or NCLT order, only in the rare cases where the increase is linked to a scheme sanctioned by the Tribunal.

Once filed, the Registrar verifies the form and attachments, and the e-MOA Clause V is checked against the resolution figure. Processing typically takes two to seven working days for a clean filing on a company with a compliant MCA status. The Master Data on the MCA portal is updated once the ROC approves the form, and it is this Master Data entry, not the resolution date, that governs when the company can legally allot shares beyond the old ceiling. A company that has already received investor funds cannot file Form PAS-3 for the allotment until SH-7 has been approved and Master Data reflects the new capital.

One filing precondition is easy to miss. The MCA system automatically rejects SH-7 filings from companies whose status is not “active compliant.” A company with overdue annual filings, or that has not filed Form INC-22A where applicable, must clear that backlog before SH-7 will go through.

What is the ROC filing fee for increasing authorised capital

The ROC filing fee for Form SH-7 is the differential between the fee slab applicable at the new authorised capital level and the fee already paid at the old level, calculated under Table A of the Companies (Registration Offices and Fees) Rules, 2014. It is not a flat fee, and above ₹1 crore of authorised capital it rises steeply to ₹75,000 per crore or part thereof.

Table: ROC fee slabs under the Companies (Registration Offices and Fees) Rules, 2014

The fee payable on SH-7 is the difference between the slab fee at the new figure and the slab fee the company already paid at the old figure, not the full slab fee at the new figure. A company moving from ₹1 lakh (fee already paid, ₹2,000) to ₹10 lakh pays ₹4,000 minus ₹2,000, which is ₹2,000 as the ROC fee for this filing. Above ₹1 crore, the arithmetic changes character. A company increasing from ₹1 crore to ₹5 crore pays ₹75,000 multiplied by four additional crore slabs, which is ₹3,00,000 in ROC fee alone, before stamp duty is even added. This is the single biggest reason founders should size the increase for two to three years of expected issuance rather than repeating small increases, since each repeat triggers its own slab differential and its own professional fee.

How much stamp duty applies on increasing authorised capital, state wise

Stamp duty on an increase in authorised share capital is a state government levy on the alteration of the Memorandum of Association, charged on the incremental capital amount and collected electronically through the MCA portal at the time of SH-7 filing. Rates and caps differ by the state where the company’s registered office is located, and the gap between the cheapest and costliest state runs into lakhs of rupees at higher capital levels.

Table: indicative stamp duty on increase in authorised capital by state

These figures are drawn from current market practice and each state’s own Stamp Act as amended from time to time, and they change without a single central notification, unlike the Companies Act itself. Karnataka’s stamp duty on the related Articles of Association charge was revised tenfold by the Karnataka Stamp (Amendment) Act 4 of 2024, and Maharashtra’s schedule was similarly revised in October 2024, which is a reminder that state stamp legislation moves independently of MCA rule changes. Treat the table above as a planning estimate, and always verify the exact figure using the MCA portal’s built in fee and stamp duty calculator, which auto-computes based on the company’s registered state, before the general meeting fixes the capital figure. A mismatch between manually calculated stamp duty and the portal’s auto-calculation is a recurring reason for SH-7 being returned.

The state gap has a real commercial consequence. A company increasing authorised capital from ₹10 lakh to ₹1 crore pays roughly ₹18,000 in stamp duty in Maharashtra against ₹100 in Delhi, a difference that has nothing to do with the transaction itself and everything to do with where the registered office sits. This is one of several factors, alongside professional tax and local body registrations, that founders weigh when choosing the state of incorporation for a company expecting multiple funding rounds.

• Stamp duty is charged on the incremental increase only, not on the entire post-increase authorised capital.
• It is paid at the same time as the ROC fee, in the same MCA challan, during SH-7 filing.
• The rate is determined by the state where the registered office is located, not the state where the company’s business operations sit.
• Historically litigated question: whether stamp duty is payable again on an increase when duty was already paid at incorporation on the original capital. The Supreme Court in State of Maharashtra v. National Organic Chemical Industries Ltd settled this in favour of the states, holding that stamp duty is payable afresh on the incremental amount at each increase, since each increase alters the Memorandum afresh.

Total cost of increasing authorised capital: worked examples

The total cost of an SH-7 filing is the ROC fee differential plus state stamp duty plus the professional fee for drafting and filing, and the three components do not scale together, so a single blended percentage cannot substitute for checking each scenario.

Table: worked total cost examples (professional fee excluded, indicative only)

For increases up to ₹1 crore, the government cost across ROC fee and stamp duty stays in the four to twenty thousand range, and professional fees for drafting, EGM coordination and filing typically add another ₹3,000 to ₹15,000. Above ₹1 crore, the ROC fee slab dominates the calculation entirely and the state stamp duty component becomes comparatively minor, though it is never zero outside Delhi. This is why the sizing decision at Stage 4 of the process matters more than the state selection once a company is already increasing capital into the crores.

Applicability to public and unlisted public companies

Section 61 applies identically to private and public companies, so an unlisted public limited company follows the same ordinary resolution, Form SH-7 and stamp duty route described above. A listed public company completing the same increase carries additional obligations outside the scope of this article, including intimation to the stock exchanges under the SEBI Listing Obligations and Disclosure Requirements Regulations and, where the increase accompanies a further public offer, compliance with the SEBI ICDR Regulations. Founders running a private company toward an eventual public listing should treat these as a later-stage overlay on the same Section 61 mechanics, not a different process.

Is MGT-14 required when increasing authorised capital

Form MGT-14 is not required for the ordinary resolution that increases authorised share capital itself. It becomes necessary only when a special resolution is passed at the same meeting, most commonly to amend the Articles of Association to insert or update the capital alteration clause where it was previously absent.

Where both resolutions are passed together, the correct sequence matters for the filing. MGT-14 for the special resolution is filed first, and its Service Request Number is then referenced within the SH-7 filing for the ordinary resolution increasing capital. Filing SH-7 with a missing or incorrect MGT-14 SRN is a documented rejection reason on the MCA V3 portal, because the system cross-checks that the Articles amendment on which the capital increase depends has actually been registered.

Common mistakes that cost founders time and money

Mistake 1, treating SH-7 as a single fee. Founders often ask only about the ROC filing fee and are surprised by the stamp duty component at the time of payment. The total cost has three parts, the ROC fee differential, the state stamp duty, and the professional fee for drafting and filing, and all three should be quoted together before the general meeting is convened.

Mistake 2, e-MOA Clause V mismatch. The updated Capital Clause entered into the SH-7 e-MOA module must match the resolution exactly, down to the equity and preference share break-up and the face value per share. This is the most frequently cited reason SH-7 filings are returned by the Registrar.

Mistake 3, sizing the increase too tightly. Increasing authorised capital to exactly match the current round leaves no headroom for the ESOP pool top-up or the next round, forcing a second SH-7 within months. Since the ROC fee slab and professional fee are payable again on each filing, a single larger increase is almost always cheaper than two smaller ones.

Mistake 4, filing after the investment is received. SH-7 must be approved before Form PAS-3 for the allotment can be filed. The PAS-3 deadline itself varies by route: 15 days from allotment for a private placement under Section 42 read with Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and 30 days from allotment for a rights issue under Section 62(1)(a). Companies that start the SH-7 process only after receiving investor funds risk breaching whichever PAS-3 deadline applies, and in the worst case, funds sit in the bank account unable to be treated as allotted share capital while the SH-7 backlog clears.

Mistake 5, filing beyond 30 days without budgeting the additional fee. Filing SH-7 after the 30-day window attracts an additional fee of ₹100 per day of delay with no upper cap under Section 403, on top of the base ROC fee and stamp duty already computed. Beyond the additional fee, non-filing itself is a penalty offence under Section 61 read with Section 450, attracting a penalty of ₹1,000 per day of default on the company and every officer in default, subject to a maximum of ₹5,00,000 for the company and ₹1,00,000 for each officer.

A company with a pending annual return or an unfiled INC-22A cannot have its SH-7 processed regardless of how correctly the form is drafted, under Section 92 read with the active company compliance requirements, and that backlog often surfaces only when the SH-7 is rejected mid-fundraise. We now run a Master Data and compliance status check as the first step, before drafting a single resolution, precisely because clearing an unrelated compliance gap two weeks into a term sheet negotiation is far more expensive than clearing it a week before the round even opens.

A second pattern worth flagging: companies that increase capital in round numbers matched exactly to the term sheet amount, without accounting for the ESOP pool the same term sheet usually requires. Under Section 62(1)(b), the ESOP scheme itself needs authorised headroom for the full pool, not just the immediate exercise tranche, and a second SH-7 six months later to fix an underestimated pool costs more in aggregate than sizing correctly the first time.

Frequently asked questions

Q: Can a company increase authorised share capital by any amount?
A: Yes, under Section 61(1)(a) of the Companies Act, 2013, there is no statutory ceiling on the amount of the increase or on how many times a company may increase authorised capital, provided the Articles of Association permit the alteration.

Q: What is the time limit for filing Form SH-7?
A: Form SH-7 must be filed within 30 days of the date the ordinary resolution increasing authorised capital was passed at the general meeting, under Section 64 of the Companies Act, 2013.

Q: Does increasing authorised capital automatically issue new shares?
A: No. Increasing authorised capital under Section 61 only raises the legal ceiling. Actual issuance and allotment of shares is a separate process under Section 62, completed through a distinct Board or shareholder approval and Form PAS-3.

Q: Is an EGM mandatory, or can the Board approve the increase alone?
A: A Board resolution alone is not sufficient. Section 61 requires an ordinary resolution passed by shareholders at a general meeting, either an Extraordinary General Meeting called for the purpose or the next Annual General Meeting.

Q: How is the ROC fee for SH-7 calculated?
A: The fee is the differential between the fee slab applicable at the new authorised capital and the fee already paid at the old level, under Table A of the Companies (Registration Offices and Fees) Rules, 2014, ranging from ₹2,000 at the lowest slab to ₹75,000 per crore above ₹1 crore.

Q: Why does stamp duty on the same increase differ across states?
A: Stamp duty on the Memorandum of Association alteration is levied under each state’s own Stamp Act, not a central law, so Delhi, Maharashtra, Karnataka and other states each set their own rate and cap independently, and these are amended by state legislatures without a common notification date.

Q: What documents does Form SH-7 require?
A: The certified ordinary resolution, the general meeting notice with the Section 102 explanatory statement, and the altered Memorandum of Association reflecting the new Clause V. If a special resolution amended the Articles beforehand, the MGT-14 SRN is also required.

Q: Is MGT-14 needed for the capital increase resolution itself?
A: No. MGT-14 is required only where a special resolution was passed, typically to amend the Articles of Association where the capital alteration clause was previously absent. The ordinary resolution increasing capital does not itself require MGT-14.

Q: Does an increase in authorised capital trigger any FEMA or RBI filing?
A: Not by itself. Increasing authorised capital is a domestic MCA event. FEMA reporting obligations such as Form FC-GPR arise only when shares are actually allotted to a foreign investor under the subsequent Section 62 allotment, which is a separate filing on the RBI’s FIRMS portal.

Q: Does DPIIT-recognised startup status change the SH-7 process?
A: No. DPIIT recognition affects tax exemptions and certain compliance relaxations elsewhere, but the Section 61 process, Form SH-7 filing, ROC fee slab and state stamp duty apply identically regardless of DPIIT status.

Q: What happens if SH-7 is not filed within 30 days?
A: An additional fee of ₹100 per day of delay applies under Section 403, with no upper cap, and separately the company and every officer in default face a penalty of ₹1,000 per day of default under Section 61 read with Section 450, capped at ₹5,00,000 for the company and ₹1,00,000 per officer.

Q: Can a promoter or co-founder object to an authorised capital increase?
A: Since Section 61 requires only an ordinary resolution, a simple majority carries the vote. Promoter groups holding a minority stake cannot block the increase alone, though shareholders’ agreements between founders and investors often layer in a higher consent threshold for capital increases, which sits outside the statutory minimum and must be checked separately.

Q: How does an authorised capital increase affect an ESOP pool for existing option holders?
A: It does not dilute or alter vested or granted options directly, but it creates the headroom needed under Section 62(1)(b) for the company to issue the full scheme’s shares on exercise. Undersizing the increase relative to the ESOP scheme size is a common reason companies return to SH-7 within a year.

Q: What if the term sheet closing date is sooner than the 21-day EGM notice period allows?
A: Shorter notice is valid where members holding at least 95 percent of the voting power entitled to vote at the meeting consent in writing, which is the route most founder-controlled companies use to compress the timeline ahead of a funding close.

Q: Can authorised capital be reduced or decreased instead of increased?
A: Form SH-7 also covers cancellation of authorised but unissued shares, which lowers authorised capital without touching any shareholder’s holding and needs only the same ordinary resolution route. A reduction that affects issued, subscribed or paid-up capital is a different and more onerous process under Section 66, requiring NCLT sanction, and is not interchangeable with the SH-7 cancellation route.

Q: Does an LLP follow the same process to increase its capital?
A: No. An LLP has contribution, not share capital, and increasing it is a partner-level change filed on Form 3 under the LLP Act, 2008, not Form SH-7. Stamp duty on an LLP contribution increase is charged under the same state Stamp Acts but on a different schedule and is often a flat amount rather than a percentage.

Q: Is there any income tax or GST implication when authorised capital is increased?
A: No. Increasing authorised capital is a capital account event with no revenue character, so it does not attract GST, and it has no direct income tax consequence for the company. The ROC fee and stamp duty paid are treated as capital expenditure in the books, not as a deductible revenue expense.

Regulatory references:

• Companies Act, 2013, Section 2(8): definition of authorised capital
• Companies Act, 2013, Section 13: alteration of Memorandum of Association
• Companies Act, 2013, Section 14: alteration of Articles of Association
• Companies Act, 2013, Section 42: private placement of securities
• Companies Act, 2013, Section 61(1)(a): power to increase authorised share capital
• Companies Act, 2013, Section 62, Section 62(1)(a) and Section 62(1)(b): rights issue, ESOP issuance and allotment of shares
• Companies Act, 2013, Section 64: notice to Registrar of alteration of share capital
• Companies Act, 2013, Section 66: reduction of share capital, NCLT process
• Companies Act, 2013, Section 102: explanatory statement for general meeting notices

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Treelife

Treelife Team | support@treelife.in

We are a legal and finance firm with a deep focus on the startup ecosystem. We offer a wide range of services, including Virtual CFO, Legal Support, Tax & Regulatory, and Global Expansion assistance.

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