What is Authorized Capital?
Authorized Capital (also called Registered Capital or Nominal Capital) is the maximum amount of share capital that a company is authorized to issue to shareholders, as stated in its Memorandum of Association (MOA). It represents the ceiling on total shares a company can issue — not what has actually been issued.
When a company needs to issue more shares than its current authorized capital allows — for fundraising, ESOP issuance, or business expansion — it must first increase its authorized capital through the prescribed process under Section 61 of the Companies Act, 2013.
Authorized vs Paid-Up Capital
| Feature | Authorized Capital | Paid-Up Capital |
|---|
| Definition | Maximum shares the company is allowed to issue | Actual value of shares issued and paid for by shareholders |
| Stated In | MOA — Capital Clause | Balance Sheet |
| Legal Ceiling | Yes — cannot issue shares beyond this | No — can be any amount up to authorized capital |
| Stamp Duty | Paid at incorporation and each increase | No separate stamp duty |
When is Authorized Capital Increase Required?
- Issuing fresh equity shares to investors (VC, PE, angel investors)
- Creating ESOP pool for employee stock options
- Bonus share issuance exceeding current headroom
- Conversion of debt/loans into equity shares
- Business expansion requiring fresh capital infusion
- Mergers and acquisitions involving share swap
Government Fee for Authorized Capital
Stamp duty and MCA filing fee for SH-7 varies based on the amount of authorized capital increase. The fee is payable through the MCA portal at the time of filing.
Penalties for Non-Compliance
| Violation | Penalty |
|---|
| Base penalty (Section 450) | ₹10,000 |
| Continuing daily penalty | ₹1,000 per day |
| Form SH-7 late filing | ₹1,000 per day (max ₹25 lakh) |
