Authorized Capital

Authorized Capital (also called nominal or registered capital) is the maximum value of shares a company is legally permitted to issue to its shareholders. It is fixed by the capital clause of the Memorandum of Association (MoA) and defined in Section 2(8) of the Companies Act, 2013. A company cannot allot shares beyond this ceiling until it formally increases the limit, though it may issue any amount up to it.

Key features

• It sets a cap, not an obligation — the portion actually issued to shareholders is the paid-up (or issued) capital, which is usually lower.
• Since the Companies (Amendment) Act, 2015, there is no minimum authorized capital prescribed for private or public companies.
• The Registrar of Companies (ROC) levies a government fee and stamp duty calculated on the authorized amount, so a larger figure means higher registration cost.

Increasing authorized capital

When a company needs to raise more equity than its ceiling allows, it alters the MoA capital clause. Under Section 61(1)(a), this requires an ordinary resolution passed by shareholders in a general meeting, provided the Articles of Association permit the increase. If the Articles are silent, they must first be amended by special resolution under Section 14. The change is then notified to the ROC in Form SH-7 under Section 64, filed on the MCA V3 portal within 30 days along with the applicable fee and stamp duty.

Example

A private limited company registered with authorized capital of ₹10 lakh and paid-up capital of ₹5 lakh can issue up to ₹5 lakh more in shares without increasing its authorized capital — though every allotment must still be reported to the ROC in Form PAS-3 (Return of Allotment) under Section 39, within 30 days (15 days for a private placement). To onboard an investor needing ₹15 lakh of fresh equity, it must first raise the authorized capital by passing the resolution and filing Form SH-7.