Increase / Change in Share Capital

Authorised capital is the maximum value of shares the company's Memorandum of Association permits it to issue — the ceiling. Paid-up capital is the actual value of shares issued and subscribed by shareholders at any given time — always less than or equal to authorised capital. A capital change most commonly means increasing this ceiling (via Form SH-7) so that the company can then issue more shares (via Form PAS-3) without exceeding the limit set in its MoA.

Increasing authorised capital requires that the Articles of Association permit it (or be amended to permit it), a special resolution passed by shareholders under Section 61 read with Section 13 of the Companies Act 2013, and Form SH-7 filed with the Registrar of Companies within 30 days of the resolution, along with the applicable RoC fee (computed on the incremental capital) and state stamp duty.

Form SH-7 is the MCA e-form used to notify the Registrar of Companies of any alteration to a company's share capital — including an increase in authorised capital, a sub-division, or a consolidation of shares. It must be filed within 30 days of the resolution (or the meeting at which it was passed) authorising the change, along with a certified copy of the resolution and the altered Memorandum of Association.

In most cases, yes — Section 61 requires alteration of share capital to be authorised by the company's Articles, and increasing authorised capital typically requires an ordinary resolution if the AoA specifically permits it by ordinary resolution, though the more common and safer practice — particularly where the AoA is silent or ambiguous — is to pass a special resolution. Many companies' AoAs are drafted to require a special resolution for any capital alteration as a matter of governance discipline.

A rights issue under Section 62(1)(a) of the Companies Act 2013 is an offer of new shares made exclusively to existing shareholders, in proportion to their current shareholding, giving them the first right to subscribe before the shares can be offered to anyone else. Raising money from a new investor who is not already a shareholder is a different mechanism entirely — typically a preferential allotment under Section 62(1)(c) or a private placement under Section 42 — and requires different resolutions, valuation, and (for private placements) a PAS-4 offer letter and separate bank account for application money.

Under Section 62(1)(a)(i) and the rules made thereunder, the offer must remain open for acceptance for a period which is not less than seven days and not more than thirty days from the date of offer, unless 90% of members entitled to vote agree in writing to a shorter period. If a shareholder does not respond within this window, the Board may deal with the unsubscribed shares in a manner it considers most beneficial to the company, subject to the AoA.

Sub-division splits each existing share into multiple shares of a lower face value, without changing the total paid-up capital — for example, converting one ₹100 face-value share into ten ₹10 face-value shares. Companies typically sub-divide shares before creating an ESOP pool (a lower face value makes individual employee grants easier to size) or before a fundraise where the investor's expected price-per-share works more cleanly against a larger share count.

Consolidation is the reverse of sub-division — combining multiple shares of lower face value into fewer shares of higher face value, again without changing total paid-up capital. It is less common than sub-division but is used to simplify an unwieldy share count — for instance, before a strategic sale or merger where a cleaner, smaller number of shares makes the transaction documentation and valuation easier to work with.

Not typically, if the rights issue is priced at or in line with the previous round or at a price the Board and shareholders agree is fair among themselves, and there is no requirement in the AoA or a shareholders' agreement mandating one. A valuation report becomes necessary where shares are issued to a person resident outside India (to satisfy FEMA/RBI pricing guidelines) or where the company's AoA, investment agreement, or a preferential allotment under Section 62(1)(c) specifically requires a valuation under Rule 11UA of the Income-tax Rules or the Companies (Share Capital and Debentures) Rules.

The shareholder's entitlement is simply not exercised — they are not compelled to subscribe. Under Section 62(1)(a), the shareholder has the right to renounce the offer in favour of another person unless the Articles restrict this. If neither exercised nor renounced within the offer window, the Board may allot the unsubscribed shares in a manner it considers most beneficial to the company — subject to the AoA and, in practice, typically to other consenting existing shareholders or an agreed external party.

Yes. Section 62(1)(a) permits the right of renunciation in favour of another person, but this can be restricted or excluded by the company's Articles of Association. Many closely-held private companies deliberately restrict renunciation to maintain a tight, known shareholder base and prevent an unintended third party from acquiring shares through a renounced rights offer.

Form MGT-14 is used to file certain resolutions and agreements with the Registrar of Companies, including special resolutions. Where a capital alteration (increase in authorised capital, sub-division, consolidation) is approved by special resolution, MGT-14 must generally be filed within 30 days of the resolution, in addition to Form SH-7. Private companies have an exemption from filing MGT-14 for certain Board resolutions and some ordinary resolutions, but special resolutions relating to alteration of capital typically still require it.

The RoC filing fee for Form SH-7 is computed on a slab basis according to the incremental authorised capital (the increase amount, not the total post-increase figure), as prescribed under the Companies (Registration Offices and Fees) Rules. State stamp duty is levied separately on the incremental authorised capital, and rates vary meaningfully by state — some states charge a flat rate per lakh of incremental capital, others apply a percentage. Because rates change and vary by state, we compute the exact current figure for your state of incorporation at the time of filing rather than quoting a fixed number.

For a straightforward authorised capital increase followed by an allotment, a realistic timeline is 4–6 weeks — accounting for the mandatory notice period for the general meeting, the 30-day filing windows for SH-7, MGT-14, and PAS-3, and the time to update the Register of Members and issue share certificates. A rights issue alone, without a prior authorised capital increase, typically completes in 2–5 weeks because of the mandatory 7–30 day offer period. Sub-division or consolidation without an accompanying allotment is generally the fastest, at 2–3 weeks.

No. A special resolution can be passed at a duly convened general meeting (in person or, where permitted, through video conferencing under MCA's framework for company meetings), or through postal ballot / e-voting for companies where these mechanisms are used. What matters is that proper notice was given, quorum requirements were met, and the resolution received not less than three-fourths of the votes cast in favour.

Reducing authorised capital alone (without touching paid-up capital) is procedurally possible under the same Section 61 framework via special resolution and SH-7, though far less common in practice than an increase. Reducing paid-up capital (actually returning capital to shareholders or writing down its value) is a fundamentally different and more heavily regulated process under Section 66, which generally requires NCLT (National Company Law Tribunal) approval and is not something a routine SH-7 filing can achieve.

A rights issue under Section 62(1)(a) raises fresh paid-up capital — shareholders pay for the new shares offered to them. A bonus issue under Section 63 capitalises the company's free reserves, securities premium, or capital redemption reserve into new shares issued to existing shareholders free of cost, in proportion to their holding — no fresh money comes into the company. Both increase the number of shares outstanding, but only a rights issue brings in new capital.

Yes. Any allotment of shares to a person resident outside India — whether through a rights issue, a preferential allotment, or a fresh subscription — constitutes Foreign Direct Investment (FDI) under FEMA, and Form FC-GPR must be filed on the RBI FIRMS portal within 30 days of the allotment date, regardless of the mechanism used to arrive at that allotment.

At minimum: certified copies of the current MoA and AoA, the current Register of Members, the most recent audited financial statements, existing share certificates for any shareholders affected by a sub-division or consolidation, and a clear statement of the commercial objective (investor round, ESOP pool, promoter reorganisation, or simple capital headroom). For a rights issue, we additionally need the proposed offer price and entitlement ratio.

No. Form SH-7 (increasing authorised capital) must be approved by the Registrar before Form PAS-3 (return of allotment) reflecting shares that push paid-up capital past the old ceiling can be validly filed. In practice, once SH-7 is filed, approval typically comes through within a matter of days on the MCA portal, after which the allotment can proceed and PAS-3 can be filed within its own 30-day window.

Late filing of MCA e-forms attracts an additional fee that escalates with the delay, under the fee schedule prescribed by the Companies (Registration Offices and Fees) Rules, and for certain filings can also trigger heightened scrutiny or a compounding requirement if the delay is substantial. There is no fixed cap on the additional fee that accrues the longer the delay continues, which is why we build these deadlines into the client's compliance calendar from the day the resolution is passed.

A rights issue under Section 62(1)(a) is primarily authorised through a Board resolution and the statutory offer process to shareholders — a separate special resolution of shareholders approving the rights issue itself is not always mandated by the Act unless the company's AoA specifically requires it, or unless the rights issue is being combined with an increase in authorised capital (which does require a special resolution) or a variation of class rights.

A rights issue, if every existing shareholder takes up their full entitlement, leaves everyone's percentage ownership unchanged — that is the entire point of offering shares pro-rata. If some shareholders do not take up their entitlement and it is allotted elsewhere, those who did not participate are diluted. A pure sub-division or consolidation does not change anyone's percentage ownership at all — it only changes the number of shares and the face value per share, not the proportional stake.

Yes, subject to Section 48 of the Companies Act 2013 governing variation of shareholders' rights — this requires a special resolution and the consent of at least three-fourths of the shareholders of the class whose rights are being varied (or an equivalent mechanism specified in the AoA). This is typically done as part of a structured investment round where an investor requires Compulsorily Convertible Preference Shares (CCPS) rather than plain equity.

Yes. Stamp duty on authorised capital is charged incrementally each time the authorised capital is increased, calculated on the amount of the increase (not the new total), at the rate applicable in the state of incorporation at the time of that specific increase. There is no exemption for companies that have already paid stamp duty on a previous increase.

For a rights issue or any fresh allotment, share application money from subscribing shareholders must be received into the company's bank account before the Board passes the allotment resolution and before PAS-3 is filed — MCA and the company's own governance require documentary evidence (bank statement) that consideration was actually received prior to allotment. For foreign shareholders, the funds must typically be routed through a proper banking channel compliant with FEMA, and the receiving bank may require the FC-GPR reporting to be completed as part of its own compliance process.

Yes, subject to what the company's AoA and the special resolution specify — there is no statutory minimum face value prescribed under the Companies Act 2013 for private companies, though ₹1 or ₹10 are the most common face values used in practice after a sub-division, particularly ahead of an ESOP pool or a fundraise. Extremely granular fractional face values are uncommon in practice because they add complexity to share certificate and register administration without a corresponding benefit.

If the AoA does not contain an enabling clause for altering share capital, it must be amended — also via special resolution under Section 14 — either at the same general meeting as the capital change resolution (if drafted and noticed correctly as a combined agenda) or in a preceding meeting. We draft the AoA amendment and the capital change resolution together so that a single, correctly noticed general meeting can address both.

An SHA between founders and existing investors frequently contains its own approval thresholds, pre-emption rights, and anti-dilution provisions that apply independently of the statutory requirements under the Companies Act. A capital change that is procedurally valid under the Act can still breach the SHA if, for example, it does not offer existing investors their contractual pre-emptive right, or triggers an anti-dilution adjustment that was not accounted for in the resolution.

Not necessarily — the pricing of a rights issue is a commercial decision for the company and its shareholders to agree upon, subject to any pricing floor imposed by the AoA, an SHA, or (where a foreign shareholder is involved) FEMA/RBI pricing guidelines that generally prevent issuing shares to a non-resident below fair value. Domestic rights issues among existing resident shareholders have more pricing flexibility than issues involving foreign participants.

Nothing — unissued authorised capital simply remains as unused headroom in the Memorandum of Association. There is no statutory penalty, expiry, or 'use it or lose it' requirement for authorised capital that is never issued as paid-up shares. Some states' stamp duty structures mean a company effectively pre-pays for headroom it may never fully use, which is why right-sizing the increase to actual near-term plans matters.

An OPC can undertake an authorised capital increase using broadly the same Section 61/13 and SH-7 framework as any other company, subject to OPC-specific provisions in the Act. An LLP does not have 'share capital' at all in the Companies Act sense — LLP capital contributions and partner interests are governed entirely by the LLP Agreement and the LLP Act 2008, and any change to an LLP's capital contribution structure is made by amending the LLP Agreement and filing Form 3 with MCA, not through SH-7 or PAS-3.

PNPC charges a fixed, agreed professional fee for a capital change engagement, scoped to the specific type of change (authorised capital increase, rights issue, sub-division/consolidation, or a combination) and confirmed in writing before work begins. Government fees, stamp duty, and any third-party valuation report costs are separate, pass-through costs quoted transparently alongside the professional fee.

Many in-house or retainer company secretaries can competently file SH-7 or PAS-3 once told exactly what to file. What is harder to get from a pure filing service is the upstream advisory: confirming the AoA actually permits the intended change, correctly distinguishing a rights issue from a preferential allotment for a new investor, sizing the authorised capital increase against your realistic 18–24 month plan, and catching FEMA implications before an allotment to a foreign shareholder is made. PNPC provides both the advisory judgment and the filing execution as one engagement — with a practising CA firm's institutional understanding of your business behind it.

Waiting until the investor's term sheet has a hard closing date to discover that authorised capital is insufficient, or that the AoA does not permit the increase, or that a foreign co-investor's participation requires an FC-GPR filing that has not even been discussed. Every one of these issues is straightforward to resolve with 3–4 weeks of lead time and becomes a genuine closing risk with less than a week.