To increase authorised share capital you go board meeting first, then members' resolution, then the filing with the Registrar, in that order. The memorandum's capital clause is altered, the company pays the filing fee and any stamp duty the state schedule imposes, and the updated memorandum must match the figure filed. Authorised capital is the ceiling the company may issue; paid-up capital is what has actually been subscribed and paid.
Before you start
- The articles of association, to confirm the company is permitted to alter its capital.
- The current memorandum of association, and the exact wording of the capital clause you are going to change.
- The board's recommendation and the amount by which the capital is to rise.
- A draft notice of the general meeting with the explanatory statement, setting out the reason for the increase.
- The state stamp schedule that applies to the company, because the duty is charged by the state where the registered office sits.
Steps
- Board meeting. The board passes a resolution recommending the increase, fixing the amount, approving the notice of the general meeting and the explanatory statement, and fixing the date of the meeting (Section 179). Nothing can be filed until the members have acted.
- Send the notice. Give at least twenty-one clear days' notice of the general meeting under Section 101, with the explanatory statement under Section 102 explaining the increase and its effect. A shorter notice is possible only with the consent the Act requires, and the paperwork must show that consent.
- Pass the members' resolution. Section 61(1) allows a company to alter its memorandum to increase its authorised share capital by the members' ordinary resolution. The resolution states the new authorised capital and the division into shares. There is nothing to be gained by under-describing the amount — the memorandum has to carry the exact figure.
- Alter the capital clause. The memorandum's capital clause is rewritten to show the increased authorised capital. Prepare the altered memorandum, because it is filed with the Registrar alongside the resolution.
- Attend to stamp duty. An increase in authorised capital attracts stamp duty in most states, charged on the increase under the applicable state stamp schedule. Pay it before the filing and keep the receipt, because a filing without the duty paid can be returned.
- File Form SH-7 with the Registrar. Notice of the alteration is given within thirty days of the resolution under Section 64, in Form SH-7, together with the altered memorandum and the resolution. The MCA charges a registration and filing fee on the authorised capital on a slab basis, so a larger capital costs more to file; the exact slabs are set by the registration office and fee rules, not by the amount alone.
- Update the records. Once the Registrar records the increase, the authorised capital on the register changes. Only then can the company allot the further shares — and that allotment triggers its own filing of a return of allotment, which is a separate step people often forget. The resolution, the altered memorandum and the SH-7 filing are standard company formation and corporate compliance work, and the corporate and company law formats show the clause and the forms.
Documents to keep
- The board resolution, the notice of the meeting and the signed minutes.
- The members' resolution approving the increase.
- The altered memorandum of association showing the new capital clause.
- Form SH-7 with the service request number, and the fee and stamp duty challans.
- The updated share capital record and, later, the return of allotment for any shares issued out of the increase.
What goes wrong
- The articles do not authorise it. If the articles do not permit alteration of capital, they have to be changed before the capital can go up, or the whole exercise is out of order.
- Short notice without the required consent. The consent has to be recorded; assuming every member was content is not enough.
- Filing SH-7 late. The thirty-day window from the resolution is short, and a late filing invites the penalty the Act carries.
- Paying stamp duty on the wrong instrument or in the wrong state. The duty is state-specific and attaches to the increase; a receipt for the wrong item is not a receipt for this one.
- Confusing the two capitals. Increasing authorised capital does not bring money into the company. It only raises the ceiling. Money arrives when shares are allotted and paid for, and that is a different filing.
- Filings out of order. Allotting shares before the increase is recorded produces a filing that cannot be squared with the memorandum.
Common questions
Do I need a special resolution to increase capital?
No. An increase of authorised share capital is by ordinary resolution under Section 61. A special resolution is required for other alterations of the memorandum, such as the object clause or the name, and if the articles themselves demand one, follow the articles.
Is stamp duty payable on the increase?
In most states, yes, and it is charged on the amount of the increase under the state stamp schedule. Because the rate and the basis vary by state, the figure has to be worked out for the state where the company is registered before the filing is made.
What is the difference between authorised and paid-up capital?
Authorised, or nominal, capital is the maximum the company is allowed to issue as set by its memorandum. Paid-up capital is the part of the issued capital for which shares have actually been paid. A company can have a large authorised capital and a tiny paid-up capital; that gap is normal and is not itself a problem.
What fee does the Registrar charge?
The MCA charges a registration and filing fee that rises with the authorised capital in slabs, as the registration office and fee rules prescribe. The fee is on the capital figure, so the increase is what drives the cost, not the resolution alone.
Increasing capital is a sequence, not a form. FileX Advocates & Legal Consultants, Kolkata, prepares the board and members' resolutions, the altered memorandum clause and the SH-7 filing, and keeps the authorised and paid-up figures consistent. Call +91 7439811422 or WhatsApp us if you are raising capital or bringing in a new investor.