Increasing Authorised Share Capital: SH-7 Filing Guide for Pvt Ltd Companies
Raising an investor round, adding a co-founder, or setting up an ESOP pool often means your company's authorised share capital needs to go up first. Here's what Section 61 and Section 64 of the Companies Act require, and what happens if Form SH-7 is filed late.
CA Harun Raaj
pvtltd.co
If your company is bringing in a new investor, adding a co-founder, or setting up an ESOP pool, and the new shares you plan to issue would push capital above what your Memorandum of Association (MOA) currently permits, you cannot issue those shares yet. You must first increase your authorised share capital — the ceiling stated in your MOA — and report that increase to the Registrar of Companies (ROC) in Form SH-7.
Key point: once the company alters its share capital under s.61, notice in Form SH-7 with the altered memorandum must reach the ROC within 30 days (s.64(1), Rule 15) — or a per-day penalty under s.64(2) starts running.
Authorised capital vs paid-up capital: why this trips up founders
Authorised share capital is not the same as paid-up capital. Authorised capital is the maximum a company is permitted to issue under its MOA. Paid-up capital is what has actually been issued and paid for. A company incorporated with ₹1,00,000 of authorised capital (10,000 shares of ₹10 each) cannot issue ₹5,00,000 worth of new shares to an investor without first raising the authorised ceiling.
Situations where you must increase authorised capital first
- Issuing new equity or preference shares that would exceed the current authorised limit.
- Converting debt into equity beyond the company's existing headroom.
- Creating an ESOP pool that requires share issuance beyond the authorised limit.
- Giving effect to an order that increases authorised capital (s.64(1)(b)).
Who can approve the increase
"A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to ... increase its authorised share capital by such amount as it thinks expedient" (s.61(1)(a), Companies Act, 2013). So the articles must first permit it — and articles themselves can only be altered "by a special resolution" (s.14(1)). Most standard post-2013 articles include the power; if yours are silent or restrictive, amend them by special resolution first. The increase itself is then approved in a general meeting — an ordinary resolution (votes in favour exceeding votes against — s.114(1)) suffices.
The filing process, step by step
Step 1 — Board resolution. The board approves the proposed increase and convenes an extraordinary general meeting (EGM), unless the increase is taken up at the AGM.
Step 2 — EGM notice. A general meeting needs "not less than clear twenty-one days' notice" (s.101(1)). Shorter notice is possible with consent: for a non-AGM meeting, members holding a majority in number entitled to vote and representing at least 95% of the paid-up capital with voting rights (s.101 proviso). The notice carries the explanatory statement for special business (s.102).
Step 3 — Resolution at EGM. Shareholders approve the increase and the corresponding change to Clause V of the MOA.
Step 4 — File Form SH-7 within 30 days. "The company shall file a notice in the prescribed form with the Registrar within a period of thirty days of such alteration ... along with an altered memorandum" (s.64(1)). Under Rule 15 of the Share Capital and Debentures Rules, "the notice of such alteration ... shall be filed by the company with the Registrar in Form No. SH.7 along with the fee". The 30-day clock starts from the alteration (the resolution date), and attachments include the certified resolution, the altered MOA (Clause V), and the EGM notice with explanatory statement.
Step 5 — Pay stamp duty. Stamp duty on the altered MOA is state-specific — check your state's schedule for the duty on the increase before filing.
Step 6 — Update records. Once the ROC takes SH-7 on record, update the statutory registers, the MOA, and the board minutes to reflect the new authorised capital.
What happens if you file late
Where a company fails to file within 30 days, "such company and every officer who is in default shall be liable to a penalty of five hundred rupees for each day during which such default continues, subject to a maximum of five lakh rupees in case of a company and one lakh rupees in case of an officer who is in default" (s.64(2)). For small companies, s.446B halves the penalty (subject to a company cap of ₹2 lakh and an officer cap of ₹1 lakh).
A company that files 16 days late faces ₹8,000 at the standard rate (16 × ₹500) — before the ROC even processes the form.
Where this fits with fundraising
A capital increase is usually one step in a larger sequence: EGM resolution for the increase → SH-7 with the ROC → board resolution for allotment → shareholder approval for the offer → actual allotment → a return of allotment in Form PAS-3 (filed "within thirty days" of allotment). Form SH-7 only raises the ceiling; it does not itself issue shares.
For company-specific steps and timelines, speak to your company secretary or chartered accountant before the EGM notice goes out.
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