MCA SH-7 Share Capital Alteration

A MCA SH-7 Share Capital Alteration in India governs the relationship it concerns, fixing the parties' respective duties and the terms on which they deal.

Authorised share capital is the maximum amount of share capital that a company is authorised to issue under its Memorandum of Association (MoA). It is the legal ceiling on the company's equity issuance capacity. A company cannot allot new shares — whether through a private placement, rights issue, or any other mechanism — in excess of its authorised share capital. When a company's funded needs exceed its existing authorised limit, it must first pass a resolution at a General Meeting to increase the authorised capital, amend the MoA accordingly, pay additional stamp duty to the state government, and file SH-7 with the ROC.

Section 61 of the Companies Act 2013 permits a company (if authorised by its Articles of Association) to alter its authorised share capital in five specific ways: increase the authorised capital; consolidate shares of smaller denomination into shares of larger denomination; sub-divide shares of larger denomination into shares of smaller denomination; cancel shares not taken up or agreed to be taken (this cancellation of unissued shares does not require NCLT approval and reduces authorised capital without affecting paid-up capital); and convert fully paid-up shares into stock or reconvert stock into shares. Each of these alterations requires SH-7 to be filed within 30 days of the resolution.

The distinction between SH-7 and PAS-3 is fundamental: SH-7 is filed when the authorised share capital is changed — the ceiling is being raised or restructured — while PAS-3 is filed when shares are actually allotted to shareholders (paid-up capital increases). A company planning a new round of fundraising that would require issuance beyond its existing authorised limit must first file SH-7 to expand the authorised capital, and then file PAS-3 after making the actual allotment.

Under Section 64(2) of the Companies Act 2013, failure to file SH-7 within the 30-day period attracts civil penalties of ₹1,000 per day of continuing default, subject to a maximum of ₹5,00,000 (₹5 lakh) for the company and ₹5,00,000 for every officer in default. In addition, the MCA portal charges additional fees of ₹100 per day beyond the deadline. Stamp duty on the increase in authorised share capital is payable to the state government before the amended MoA can be filed — rates vary by state from approximately 0.1% to 0.5% of the increase in authorised capital, making the state of incorporation a material consideration for companies planning large capital increases.

Form SH-7 is required every time a company's shareholders pass a resolution to alter the authorised share capital under Section 61 of the Companies Act 2013. The most common trigger is an increase in authorised capital to support a new funding round.

Pre-fundraising capital expansion: When a startup or growing company plans to raise equity capital through a private placement (angel round, Series A, B, or later stage), the company must first verify whether the proposed new shares can be accommodated within the existing authorised share capital. If the proposed allotment would cause the paid-up capital to exceed the authorised capital, an authorised capital increase (and SH-7 filing) is mandatory before the allotment can proceed. For example, a company with authorised capital of ₹10,00,000 and paid-up capital of ₹8,00,000 that wishes to allot shares worth ₹5,00,000 must first increase its authorised capital to at least ₹13,00,000.

Share sub-division before public listing: Companies preparing for an Initial Public Offering (IPO) on the BSE or NSE frequently sub-divide their shares — splitting shares of ₹10 face value into shares of ₹1 or ₹2 face value. Sub-division lowers the nominal price per share, broadening the pool of retail investors. Each sub-division requires shareholder approval and SH-7 filing within 30 days.

Consolidation of shares: Companies may consolidate shares in the reverse situation — combining multiple smaller shares into one larger share to reduce the number of outstanding shares. This is less common but requires SH-7 filing.

ESOPs and convertible instruments: When a company issues ESOPs (Employee Stock Option Plans) or convertible instruments (CCDs, CCPS) that will convert into equity shares upon exercise or conversion, the authorised capital must be sufficient to accommodate all potential conversions at the time of issuance of the ESOPs/CCIs, not just at actual conversion. If the authorised capital is insufficient, SH-7 must be filed to expand it before the ESOP scheme or convertible instrument is issued.

Cancellation of unissued shares: When a company wishes to reduce its authorised capital by cancelling unissued shares (not a reduction of paid-up capital, which requires NCLT approval), it passes a resolution under Section 61(1)(e) and files SH-7 within 30 days.

A properly prepared SH-7 filing requires several components to be complete before the form is submitted on the MCA21 portal.

Board resolution (Step 1): Before shareholders vote on the authorised capital increase, the Board of Directors must pass a resolution calling a General Meeting (EGM or AGM) for the purpose of increasing authorised share capital. The Board resolution specifies the proposed new authorised share capital structure and the date, time, and venue of the General Meeting.

Shareholder resolution at General Meeting (Step 2): The shareholders pass an ordinary resolution (simple majority — more than 50% of votes) to increase the authorised share capital, unless the Articles of Association require a special resolution (75% majority). The resolution must precisely state the new authorised share capital — the total amount and the composition (number of equity shares of specified face value, and any preference shares).

Amendment of Memorandum of Association (Step 3): Clause V (the Capital Clause) of the MoA must be formally amended to reflect the new authorised share capital. The altered MoA must be filed with the ROC as part of the SH-7 or MGT-14 filing process.

Stamp duty payment (Step 4): Additional stamp duty on the increase in authorised capital must be paid to the state government before the SH-7 can be filed. Stamp duty is calculated on the incremental increase in authorised capital (not the total new authorised capital). The rate varies by state — Maharashtra charges approximately 0.2% of the increase, while rates differ in Karnataka, Tamil Nadu, Delhi, and other states. An e-stamp or challan proving payment is attached to the SH-7 filing.

MGT-14 filing (concurrent): A certified copy of the shareholders' ordinary resolution must also be filed with the ROC using Form MGT-14 within 30 days of the General Meeting. MGT-14 and SH-7 filings are concurrent obligations — both must be filed within 30 days of the resolution date.

SH-7 form content: The SH-7 form requires: CIN and company name; date of the shareholder resolution; the old authorised share capital (before the alteration) — class of shares, number, face value, and total amount; the type of alteration (increase, consolidation, sub-division, or cancellation); and the new authorised share capital after the alteration.

Digital signatures and certification: The SH-7 form must be digitally signed by a Director (Class 3 DSC) and certified by a practising Company Secretary (CS) or Chartered Accountant (CA) in whole-time practice.

ROC filing fees: Standard ROC filing fees apply based on the new authorised share capital after the increase. For authorised capital up to ₹1,00,000 — ₹5,000 fee; ₹1,00,001 to ₹5,00,000 — ₹4,000 additional; up to ₹10,00,000 — ₹3,000 additional; up to ₹50,00,000 — ₹2,000 per lakh additional; beyond ₹50,00,000 — ₹100 per lakh subject to a maximum of ₹2,00,00,000. Late filing attracts additional fees of ₹100 per day. The forms-legal.com MCA SH-7 Share Capital Alteration template covers the mandatory elements under Companies Act, 2013.