To increase authorised share capital in India, a company first checks that its Articles of Association permit the increase, altering them under Section 14 if they do not. The Board then approves the proposal and calls a general meeting, where members pass an ordinary resolution under Section 61. The capital clause of the Memorandum is amended, and Form SH-7 is filed with the Registrar within 30 days, along with the altered Memorandum, the applicable fee and state stamp duty. The increase only raises the ceiling. It brings in no money and issues no shares. For foreign-owned companies, FEMA and RBI rules, including FC-GPR reporting, apply later, when shares are actually allotted to a non-resident investor.
The overseas parent has approved the funding, the investment papers are drafted, and the board is ready to move. Then the Indian subsidiary’s finance team notices that the shares to be issued are worth more than the company is authorised to issue. Until that gap is closed, the allotment cannot go ahead.
For this reason, before the investment is done, a foreign-owned business proposing new equity must raise Authorised share capital. Authorised share capital is the maximum amount for ceiling mentioned in the Memorandum of Association (MOA) of the company. Raising it does not bring a rupee into India, and it does not issue a single share. However, it can bring FEMA and RBI requirements into play. Therefore, it is crucial that the reporting, allotment, and capital increase take place together. A professional consulting service can help, but before reaching out to them, let’s understand what authorised share capital definition is and why it matters.
What Does a Company’s Authorised Share Capital Mean?
Authorised share capital is the maximum amount for ceiling of capital that a company is allowed to issue as per its MOA. It sets the ceiling on how much equity the company can offer to its shareholders, and it cannot go past that figure without changing the MOA first.
Paid-up capital is a different thing. It is the amount paid by shareholders for shares that the company has issued. Issued capital covers the shares the company has offered, and subscribed capital covers the ones shareholders have agreed to take. Paid-up capital indicates the amount that has been covered by payments.
For instance, take an Indian subsidiary with these numbers:
- Authorised share capital of INR 10 lakh
- Issued and fully paid-up share capital of INR 8 lakh
The company has INR 2 lakh of room left under its authorised limit. Now say it wants to issue new shares with a nominal value of INR 5 lakh. That is INR 3 lakh more than the room it has, so the authorised capital has to go up by at least that much before the issue can happen. Even then, the company will not receive INR 5 lakh in an instant.
The higher limit only makes the issuance possible. The money arrives later, through the share issue and allotment process, which is a separate step.
When Should a Business Increase Authorised Share Capital?
An increase is generally considered when the company’s existing authorised capital does not provide enough room for a proposed issue of shares.
This can arise when an Indian subsidiary is receiving a fresh equity infusion from its overseas parent, when an existing or new investor is subscribing for additional shares, or when the company is expanding its shareholder base. Companies also need additional authorised capital in connection with employee stock option arrangements, bonus issues or certain transactions involving conversion into equity, depending on the proposed structure.
The commercial question is therefore not simply how much money the company intends to raise. It is also how many shares must be issued, their nominal value and whether the existing authorised capital can accommodate that issue.
How Does India Increase Authorised Share Capital?
There are several steps involved in increasing Authorised Share Capital. Each step depends on the one before it, and the sequence is predetermined.
The table below shows the full sequence at a glance.
| Step | What Happens | Who Acts | Legal Basis |
|---|---|---|---|
| 1 | Articles are checked for a clause allowing the increase. If absent, they are amended first | Company | Section 61 and Section 14 |
| 2 | Proposal is reviewed and a general meeting is called | Board of Directors | Companies Act, 2013 |
| 3 | Resolution approving the higher capital is passed | Members | Section 61 |
| 4 | Capital clause of the memorandum is rewritten with the new figure | Company | Section 61 |
| 5 | Notice of the alteration is filed on the MCA portal | Company | Section 64, Form SH-7 |
| 6 | Statutory records are updated to show the revised capital | Company | Internal compliance |
The Board’s role is restricted to ground preparation. A Board resolution by itself cannot make changes to the Authorised capital. Only once the members have given their approval can the memorandum be changed.
Points to keep in mind during the process:
- The Articles must carry an enabling clause. Where it is missing, a special resolution under Section 14 is needed before the capital increase can begin.
- The Registrar must receive Form SH-7 within 30 days counting from the day the modification is done.
- The previous capital, the updated capital, and the increase amount are displayed on Form SH-7.
- Filing fees depend on the size of the increase, and stamp duty depends on the state of registration.
- The increase only raises the ceiling. Shares are issued later through a separate allotment.
Documents Needed to Increase Authorised Share Capital
The exact filing package depends on the company’s circumstances and the way the alteration is carried out. Common documents and information include:
- Existing Memorandum of Association
- Existing Articles of Association
- Board resolution and related meeting records
- General meeting notice and explanatory statement, where applicable
- Shareholder resolution
- Altered Memorandum of Association
- Altered Article of Association, where the Articles are amended
- Form SH-7 and its required electronic information and certification
The current MCA SH-7 instructions also require appropriate digital signatures and authorised filing arrangements, with professional certification where applicable.
What Should Foreign Businesses Consider Before Issuing More Shares?
An increase in the Authorised share capital is considered when the Indian company is a part of international group. However, getting foreign investment is not the same as expanding capital. The only thing that is affected is the limit of the shares that the company is allowed to issue, and the foreign investment rules which apply later, when the share is actually issued. Here are some points a company should work through before it allots shares to the foreign investor.
Treat the increase as a legal step only
It does not bring any funds into the Indian company, and it does not issue share or other equity instruments to a non-resident.
Know where FEMA starts
It applies when the company actually receives foreign investment, such as by issuing equity instruments to a non-resident investor.
Know which rule applies
The rules that apply are the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 and related RBI directions.
Review the issue before allotment
Check that the investment is permitted under the FDI entry route, sectoral or statutory limits and any other conditions that apply.
Check the pricing
Pricing requirements can also apply to equity instrument issued to a person resident outside India.
Plan the RBI reporting
If the issuance counts as FDI, Form FC-GPR may apply. RBI guidance says that an Indian company issuing equity instrument to a non-resident, where the issue is reckoned as FDI, must report it within 20 days of the issuance.
Do not link FC-GPR to the Capital increase
It is not filed just because authorised share capital has been increased. It relates to the foreign investment transaction and the equity instruments issued under it.
How Is the Cost of Increasing Authorised Share Capital Determined?
The statutory cost mainly depends on the MCA filing fee, which is linked to how much authorised capital the company is adding. Stamp duty also applies depending on the rules of the state where the company’s registered office is located.
It is important to check the latest MCA fee requirements and the state stamp duty rules before the filing are prepared. The company should also get an updated calculation based on the size of the proposed increase and the state where the filing and stamp duty requirement apply.
What Should a Company Do After Increasing Its Authorised Share Capital?
An increase in authorised capital does not automatically issue new shares. It only increases the company’s permitted share capital ceiling.
If the purpose of the increase is a new investment, the company must separately complete the applicable share issues or allotment process. This may involve further shareholder or board approvals, valuation and pricing requirements, statutory filings and other compliance depending on the nature of the issuance.
For an overseas parent or non-resident investor, the share issuance should also be reviewed alongside FEMA and RBI requirements before the allotment takes place. This helps ensure that the corporate actions and foreign investment reporting are handled as connected parts of the same transactions, without treating the authorised capital increase itself as the foreign investment.
Conclusion
Raising the authorised capital is half the job and the process is relatively simpler. A company checks its articles, gets the shareholder to approve the changes, amends the memorandum and files Form SH-7 to the Registrar within 30 days. Following these steps will increase the share capital on paper. However, till this point no shares have been issued, no money has been paid up, and no investors have put in a single dime.
For a foreign-owned company, the second half is the tricky part. The investor route into India, the issue price and the RBI reporting all needs to be clear before shares are allotted. These are easy to handle when they are planned alongside the capital increase.
Businesses preparing such transactions can speak to the professionals at Stratrich for guidance around the complex process of increasing authorised share capital of a company in India.
Frequently Asked Questions (FAQs)
Authorised share capital is the maximum amount of share capital a company can issue under its Memorandum of Association. Paid-up capital is different. It is the amount shareholders have actually paid to the company for the shares issued to them.
Yes, it can be done. A company can increase its authorised share capital without immediately issuing new shares. The increase changes the company’s permitted capital ceiling.
Form SH-7 is the MCA webform. It is used to notify the Registrar of specific alterations of share capital which include increase in authorised share capital. Section 64 requires the prescribed notice to be filed within 30 days of the alteration, along with the altered memorandum.
The increasing authorised share capital is not itself a foreign investment. However, if the company subsequently issues equity instrument to a non-resident, FEMA and RBI requirements may apply. These can include the applicable FDI route, sectoral limits, pricing conditions and reporting such as FC-GPR, where applicable.
