Increase in Authorised Capital vs Issue of New Shares: What Each Does and When You Need Both
Authorised capital vs share issue: SH-7 within 30 days raises the ceiling; allotment with PAS-3 within 15 days brings in money. Often you need both.
Short answer
Increasing authorised capital only raises the ceiling on shares a company may issue; it brings in no money and changes no shareholding. Issuing new shares, through a rights issue, private placement or bonus, actually allots shares and changes paid-up capital. If a planned allotment would exceed current authorised capital, you must increase authorised capital first.
- Authorised capital increase
- Section 61, Companies Act
- Filing for increase
- SH-7 within 30 days
- Approval for increase
- Ordinary resolution, if articles permit
- Return of allotment
- PAS-3 within 15 days of allotment
- Small company test
- Based on paid-up, not authorised, capital
- Costs on increase
- ROC fee and state stamp duty
How do the two differ?
Authorised capital is the maximum share capital stated in the memorandum of association. A company cannot allot shares beyond it. Raising it under section 61 is a change to the memorandum, approved by shareholders and filed with the Registrar in SH-7 within 30 days, with ROC fees based on the increase and stamp duty that depends on the state.
Issued and paid-up capital is what shareholders have actually subscribed and paid for. A new share issue increases it through a rights issue to existing shareholders, private placement or preferential allotment to new investors, bonus shares from reserves, or ESOP exercise. Each route has its own approvals and ends with a return of allotment in PAS-3 within 15 days.
Side-by-side comparison
The table compares the two actions for a private company. Many funding rounds need both, in sequence, so founders should plan the authorised capital headroom before agreeing an investment term sheet.
| Factor | Increase authorised capital | Issue new shares |
|---|---|---|
| What changes | Ceiling in memorandum | Issued and paid-up capital |
| Money received | None | Yes, except bonus shares |
| Shareholding | Unchanged | Changes or dilutes |
| Legal provision | Section 61 | Sections 62, 42, 63 depending on route |
| Approval | Ordinary resolution if articles allow | Board, and special resolution for private placement |
| Key filing | SH-7 within 30 days | PAS-3 within 15 days; MGT-14 where special resolution |
| Government cost | ROC fee and stamp duty on increase | Stamp duty on share issue as per state |
| Valuation report | Not required | Required for private placement or preferential issue |
| Effect on small company status | None | Paid-up capital above ₹10 crore ends small company status |
When do you need both?
If a company has authorised capital of ₹10 lakh fully issued and wants to allot shares to an investor, it must first raise authorised capital, then make the allotment. Both can be approved at the same general meeting, but SH-7 must be filed and the increase effective before allotment. Leave headroom for ESOP pools and conversion of CCPS or notes so that future conversions do not stall.
Authorised capital can be kept well above paid-up capital, but the ROC fee and stamp duty are paid on the increase, so oversizing has a real cost. Small company status depends on paid-up capital up to ₹10 crore and turnover up to ₹100 crore, so a large authorised capital alone does not affect it.
What are the common mistakes?
Allotting shares beyond authorised capital, missing the 30-day SH-7 window, and articles that do not permit the increase without first being amended are frequent problems. Another is forgetting stamp duty on share certificates, which is state-specific. For allotments to non-residents, FC-GPR is due within 30 days in addition to PAS-3.
Which do you need?
Work out the shares to be allotted over the next funding cycle, including conversions, before deciding. These rules capture the usual sequence that company secretaries follow for private companies in practice.
- Only raising funds within existing headroom: issue shares, no increase needed.
- Allotment would exceed authorised capital: increase authorised capital first, then allot.
- Creating an ESOP pool or issuing convertibles: confirm headroom for future conversion.
- Bonus issue planned: check headroom, as bonus shares also count towards authorised capital.
- No fundraising planned soon: avoid increasing authorised capital just for appearance.
Related services
Sources
- Companies Act 2013 and rules made under it (India Code)
- Private placement by private and unlisted public companies (TaxGuru)
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Does increasing authorised capital bring money into the company?
No. It only raises the limit on shares the company can issue. Money comes in only when shares are allotted and paid for.
What is the time limit to file SH-7?
Within 30 days of the shareholders' resolution approving the increase in authorised capital.
Can a company issue shares beyond its authorised capital?
No. Any allotment must stay within authorised capital. If more shares are needed, authorised capital must be increased before allotment.
Is stamp duty payable on increasing authorised capital?
Yes, stamp duty applies on the increase according to the relevant state's stamp law, in addition to the ROC filing fee.