Authorised Capital vs Paid-Up Capital in India

By Anuj Singh | Updated March 2026

Every foreign investor incorporating a company in India encounters two capital figures in the Memorandum of Association: authorised capital and paid-up capital. They sound similar but serve entirely different legal purposes. Authorised capital is the maximum amount of share capital a company is legally permitted to issue, defined under Section 2(8) of the Companies Act, 2013. Paid-up capital is the actual money shareholders have paid the company for shares issued, defined under Section 2(64).

The practical impact for foreign companies: authorised capital determines how much stamp duty you pay to the state government at incorporation (ranging from 0.15% to 0.3% depending on the state), while paid-up capital determines your actual equity base and directly affects FDI pricing compliance under FEMA. Set authorised capital too low and you will need a costly amendment before issuing new shares to investors. Set it too high and you overpay on stamp duty upfront.

The rule of thumb for foreign subsidiaries: set authorised capital at 2–3x your initial paid-up capital to accommodate future funding rounds without repeated MoA amendments.

Quick Comparison Table

Stamp Duty on Authorised Capital: State-Wise Rates

Stamp duty on authorised capital is a state government levy, charged at incorporation and on every subsequent increase. The rates vary significantly across Indian states. This is a real cost that foreign companies often underestimate.

Cost example: A foreign company incorporating in Maharashtra with authorised capital of INR 50 lakh pays stamp duty of INR 10,000 (10 blocks of INR 5 lakh × INR 1,000). The same company in Karnataka pays INR 15,000 (0.3% × INR 50 lakh). At INR 10 crore authorised capital: Maharashtra charges INR 2,00,000; Karnataka charges INR 3,00,000; Delhi charges INR 1,50,000.

The Supreme Court in State of Maharashtra v. National Organic Chemical Industries Ltd. ruled that once a company pays the maximum stamp duty cap (e.g., INR 50 lakh in Maharashtra), subsequent increases do not attract additional stamp duty beyond that cap. This matters for companies that plan multiple capital raises.

ROC Fee Schedule for Authorised Capital

The Registrar of Companies charges fees based on the total authorised capital (not just the increase). These fees apply at incorporation and on every increase via Form SH-7:

All ROC fees are subject to 18% GST. Example: Increasing authorised capital to INR 1 crore costs INR 1,85,000 in ROC fees (INR 1,35,000 + INR 50,000 for the INR 50 lakh above INR 50 lakh) + INR 33,300 GST = INR 2,18,300 — before stamp duty and professional fees.

How to Increase Each: Step-by-Step

Increasing Authorised Capital

1. Board Meeting — Directors pass a board resolution recommending the increase and calling an EGM/AGM
2. General Meeting — Shareholders pass an ordinary resolution under Section 61(1)(a) of the Companies Act, 2013 authorizing the increase
3. Amend the MoA — Update Clause V (Capital Clause) to reflect the new authorised capital figure
4. File Form SH-7 — Submit to ROC within 30 days of passing the resolution, attaching: notice of EGM/AGM, certified true copy of the ordinary resolution, and amended MoA
5. Pay ROC fees + stamp duty — As per the schedules above
6. File Form MGT-14 — If the resolution is a special resolution (required only for MoA alteration in certain cases)

Timeline: 15–30 days from board meeting to ROC filing completion.

Increasing Paid-Up Capital (Share Allotment)

1. Board Meeting — Directors approve the allotment of shares (Section 62 — rights issue, private placement, or preferential allotment)
2. Ensure authorised capital headroom — Paid-up capital after allotment must not exceed authorised capital; if it does, increase authorised capital first
3. Obtain valuation report — For FDI share issuance: mandatory valuation by a SEBI-registered merchant banker or chartered accountant using internationally accepted methodology (DCF or NAV per Rule 21 of FEMA NDI Rules 2019)
4. Pass special resolution — Required for private placement under Section 42; ordinary resolution for rights issue
5. File Form PAS-3 — Return of allotment filed with ROC within 15 days of allotment
6. File Form FC-GPR — For FDI transactions: file Form FC-GPR with RBI within 30 days of share allotment reporting the foreign investment
7. Issue share certificates — Within 2 months of allotment (Section 56)

Timeline: 30–60 days including valuation, resolution, allotment, and RBI reporting.

FDI Pricing Rules for Share Issuance

When a foreign investor subscribes to shares in an Indian company, FEMA pricing guidelines apply. Under Rule 21 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019:

• Unlisted companies: Shares must be issued at a price not less than the fair market value determined by a SEBI-registered merchant banker or a chartered accountant using any internationally accepted pricing methodology on an arm's length basis. The commonly accepted methods are Discounted Cash Flow (DCF) and Net Asset Value (NAV).
• Listed companies: Price must not be less than the price calculated per SEBI (ICDR) Regulations — typically the higher of the average of weekly high-low prices over the preceding 26 weeks or 2 weeks.
• Valuation report validity: 90 days from the date of the report — the transaction must close within this window
• Pricing floor: The FDI pricing guidelines set a minimum price (floor), not a maximum. The company can issue shares above fair value but not below it.

This is where authorised capital and paid-up capital intersect critically. If a foreign investor wants to invest INR 5 crore at a fair value of INR 100 per share (50,000 shares × INR 100), the company needs at least INR 5 lakh of additional authorised capital headroom (50,000 shares × INR 10 face value, assuming INR 10 par value shares). The remaining INR 4.5 crore goes to the securities premium account — which increases paid-up capital but not the number of shares chargeable against authorised capital.

Which Should You Choose?

Set Higher Authorised Capital if:

• You plan multiple funding rounds — each round may require share issuance that needs authorised capital headroom
• You want to avoid the cost and delay of repeated Form SH-7 filings (INR 35,000–2,35,000 in ROC fees each time)
• You are incorporating in a low-stamp-duty state like Delhi (0.15%) where the upfront cost is manageable
• You plan to issue ESOPs — the ESOP pool needs authorised capital headroom for shares reserved under the option scheme
• You anticipate converting convertible notes or CCPS into equity in the future

Keep Authorised Capital Conservative if:

• You are incorporating in Karnataka (0.3% stamp duty) or Maharashtra (INR 1,000 per INR 5 lakh) and want to minimize upfront state fees
• You are a single-investor subsidiary with no plans for external fundraising
• You prefer to increase authorised capital incrementally as needed (the process takes only 15–30 days)
• Your initial operations are small and you want to keep incorporation costs under INR 15,000

Common Mistakes

• Confusing authorised capital with the amount you actually invest — Authorised capital is just a ceiling in the MoA. A company with INR 10 lakh authorised capital and INR 1 lakh paid-up capital has received only INR 1 lakh from shareholders. The remaining INR 9 lakh is un-issued headroom, not money in the bank. Foreign investors routinely misread Indian balance sheets because of this distinction.
• Setting authorised capital exactly equal to planned initial investment — If your first round is INR 10 lakh, set authorised capital to at least INR 25–30 lakh. Any subsequent share issuance — employee stock options, follow-on investment, conversion of debt — will require a capital increase filing. The Form SH-7 fee plus stamp duty for even a small increase can cost INR 10,000–50,000 and takes 2–4 weeks.
• Issuing shares to a foreign investor at face value instead of fair market value — Under Rule 21 of FEMA NDI Rules 2019, shares issued to non-residents must be at or above fair market value as determined by a qualified valuer. Issuing at face value when fair value is higher triggers FEMA contravention, with penalties up to 3 times the amount involved under Section 13 of FEMA, 1999. The Enforcement Directorate actively investigates these cases.
• Forgetting that stamp duty on authorised capital varies by state — A company incorporating in Delhi pays 0.15% stamp duty; the same company in Karnataka pays 0.3% — double the rate. For INR 1 crore authorised capital, that is a difference of INR 15,000. For INR 10 crore, the difference is INR 1,50,000. Choose your state of incorporation with stamp duty in mind, especially for holding structures with high authorised capital.
• Not planning for securities premium when calculating authorised capital needs — When shares are issued above face value (which is always the case in FDI transactions at fair value), the premium goes to the securities premium account, not against authorised capital. You need authorised capital only for the aggregate face value of shares issued, not the total investment amount. A INR 50 crore investment at INR 1,000/share (face value INR 10) requires only INR 5 lakh of authorised capital headroom for the 50,000 new shares.

Practical Example

Meridian Capital Pte Ltd, a Singapore-based fintech firm, wants to set up a wholly-owned subsidiary in India. Here is how the capital structure decision plays out:

Scenario A — Conservative approach: Meridian incorporates in Delhi with authorised capital of INR 10 lakh and paid-up capital of INR 1 lakh (10,000 equity shares of INR 10 each). Incorporation costs: ROC fee INR 5,000 + stamp duty INR 1,500 (0.15% of INR 10 lakh) + professional fees INR 8,000 = INR 14,500. Six months later, a Series A investor wants to put in INR 2 crore at INR 500/share. Meridian needs to issue 40,000 new shares (face value INR 4 lakh). Current headroom: INR 10 lakh − INR 1 lakh = INR 9 lakh — sufficient. No authorised capital increase needed. Paid-up capital rises to INR 5 lakh (50,000 shares × INR 10). Securities premium: INR 1.96 crore.

Scenario B — Aggressive approach: Meridian incorporates in Maharashtra with authorised capital of INR 1 crore. ROC fee: INR 1,85,000 + GST INR 33,300 = INR 2,18,300. Stamp duty: INR 20,000 (20 blocks × INR 1,000). Professional fees: INR 15,000. Total: INR 2,53,300. This gives Meridian headroom for up to INR 1 crore in face value shares (10 lakh shares at INR 10 each) without any future Form SH-7 filing. At INR 500/share, this supports up to INR 50 crore of investment.

Best approach for Meridian: Scenario A in Delhi. Start with INR 10 lakh authorised capital at minimal cost. Increase only when a specific funding round requires it. The INR 14,500 incorporation cost vs INR 2,53,300 means Meridian saves INR 2,38,800 upfront — capital better deployed in the business.

Key Takeaways

• Authorised capital (Section 2(8)) is the MoA ceiling; paid-up capital (Section 2(64)) is actual shareholder money received — they are not interchangeable
• No statutory minimum for either after the 2015 Amendment — companies can incorporate with as little as INR 1,000 paid-up capital
• Stamp duty on authorised capital varies by state: Delhi 0.15%, Maharashtra INR 1,000 per INR 5 lakh, Karnataka 0.3% — factor this into your state of incorporation decision
• ROC fees on authorised capital are slab-based and add up fast: INR 5,000 at INR 1 lakh, INR 2,35,000+ above INR 1 crore, plus 18% GST
• For FDI share issuance, you need authorised capital headroom only for the face value of new shares — the premium goes to the securities premium account
• Set authorised capital at 2–3x your initial paid-up capital to avoid repeated SH-7 filings while keeping stamp duty manageable

Need help structuring your Indian subsidiary's capital? Beacon Filing handles incorporation, capital structuring, and FDI compliance for foreign companies entering India.