Authorised Share Capital

Authorised share capital (also written as "authorised capital") is the maximum amount of share capital that a company is permitted to issue to shareholders, as specified in the Memorandum of Association (MoA) and recorded with the Registrar of Companies (RoC) at the time of incorporation.

It represents a ceiling — the company cannot issue shares worth more than this amount without first increasing the authorised capital through a formal process.

Authorised Capital vs Paid-Up Capital

These two terms are frequently confused:

Authorised Share Capital: The maximum the company can issue. Set at incorporation; can be increased later.

Paid-Up Share Capital: The amount of capital actually issued to and paid for by shareholders. This is a subset of authorised capital — it can never exceed it.

Subscribed Capital: The amount of shares applied for by shareholders (may be different from paid-up if calls are outstanding).

Example: A company incorporated with ₹10,00,000 (₹10 lakh) authorised capital may have issued only ₹1,00,000 worth of shares initially. Authorised = ₹10 lakh; Paid-up = ₹1 lakh. The remaining ₹9 lakh of authorised capital can be issued later without any ROC approval.

Why Authorised Capital Matters

Stamp Duty at Incorporation

State governments charge stamp duty on the MoA at the time of incorporation, typically as a percentage of the authorised capital. A higher authorised capital means higher stamp duty at incorporation. Different states have different stamp duty rates, so a company incorporating in one state vs another can face different costs for the same authorised capital.

Fee for Registration

MCA charges registration fees based on authorised capital. The fee is tiered — it increases as authorised capital increases, though the marginal cost reduces significantly at higher capital levels. There is a minimum registration fee (for companies up to ₹1 lakh authorised capital).

Investor Perception

When investors review a company, the authorised capital indicates how many additional shares can be issued without requiring formal approval from the RoC. A company with substantial headroom in its authorised capital has more flexibility to issue shares to investors, offer ESOPs or raise funds through rights issues without first completing an increase in authorised capital.

ESOP and Rights Issue

If a company wants to issue stock options under an ESOP scheme or raise funds through a rights issue, the total post-issuance paid-up capital must remain within the authorised capital limit. Companies planning equity-based compensation or fundraising often increase authorised capital in anticipation.

Minimum Authorised Capital

Under the Companies Act, 2013:

• Private Limited Company: Minimum authorised capital is ₹1 lakh (though there is no minimum paid-up capital requirement since 2015)
• Public Limited Company: Minimum authorised capital is ₹5 lakh
• OPC (One Person Company): ₹1 lakh

In practice, most incorporations choose ₹1 lakh or ₹10 lakh authorised capital to keep initial stamp duty low, and increase later when needed.

How to Increase Authorised Capital

When a company needs to issue more shares than its current authorised capital allows, it must increase it through a formal process:

1. Check the AoA: Confirm that the Articles of Association permit the increase (most standard AoA allow it)
2. Board Meeting: Pass a board resolution recommending the increase
3. Extra-Ordinary General Meeting (EGM) or Annual General Meeting (AGM): Pass an ordinary resolution approving the increase (special resolution not required for increase of authorised capital, only ordinary resolution)
4. File Form SH-7 with the RoC within 30 days of the shareholder resolution, along with the applicable RoC fees and altered MoA
5. File Form MGT-14 for the resolution passed (required for public companies; private companies are now exempt from MGT-14 for most ordinary resolutions)

Fees for increasing authorised capital: Additional stamp duty (state-level) and additional RoC registration fees apply on the incremental authorised capital being added. The incremental fees are generally modest for amounts up to ₹1 crore or so.

Authorised Capital and the MoA

The Capital Clause (Clause V) of the MoA states the authorised capital, the number of shares it is divided into, and the face value per share. For example:

"The authorised share capital of the company is ₹10,00,000 (Rupees Ten Lakh only) divided into 1,00,000 equity shares of ₹10 each."

When authorised capital is increased, the MoA is amended to reflect the new amount and the altered MoA is attached to Form SH-7 filed with the RoC.