The total amount of capital a firm has acquired through issuing shares to its shareholders is called share capital. Alteration of share capital refers to an increase or decrease in a company’s authorized share capital. Section 61 of the 2013 Companies Act defines and explains a company’s ability to alter its share capital. It is possible via regular company decisions. Thus a tribunal’s approval is not required for alteration of share capital.
The company, which has decided to increase its capital, must first determine its current authorized share capital because it cannot issue shares over that amount; therefore, to issue shares, the company must increase its authorized share capital by amending its Memorandum of association.
It is a requirement that the company’s authorized share capital expand to the level necessary to issue the required number of shares if the company wishes to issue shares. The Company’s Memorandum of Association’s Share Capital Clause must thus be amended.
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A company’s share capital can vary at any time, which is called alteration of share capital. If the Articles of Association permit it, the company holding the Share Capital may change it. Nevertheless, the company must follow the Companies Act of 2013, which specifies the necessary steps.
Alteration of share capital procedure
Step 1: modifications in AOA (Articles of Association)
The legal document known as the Articles of Association contains the policies and guidelines that control the internal workings of the corporation. Hence, the Articles of Association must be reviewed to see if a clause permits a change in the company’s approved capital before any action on the authorized capital may be taken.
The procedure is simplified if the provision is present. If the clause is missing, the company must first update its articles of association following Section 14 of the Companies Act 2013 before moving forward with modifications to permitted capital.
Step 2: Must hold a board meeting
In any case, give notice of the board meeting at least seven days before the scheduled meeting. Hold the Board Meeting, at which a resolution for alteration of share capital will be approved subject to the Shareholder Meeting’s approval.
Step 3: Conducting EGM (Extraordinary General Meeting)
Set the date, day, time, and location for the EGM, and give a Director or anyone else the authority to notify the Members of that information.
The meeting is called to order with a motion to discuss the increase in share capital. Following that, voting is conducted to decide on the matter in a predetermined order. Following the resolution’s adoption and acceptance, the explanatory statement is attached, and the Authorized Capital is raised.
Step 4: Send out the shareholder meeting notice
The meeting notice must be published at least 21 days before the shareholder meeting. It may also be called if at least 95% of the company’s portion of its paid-up capital agrees to the shorter notice of the shareholder meeting.
Step 5: Accept the special resolution
With the support of the majority of shareholders, a special resolution should be adopted at the shareholder meeting.
Step 6: Submit Form SH-7 to the ROC
Within 30 days following the Ordinary resolution’s passage, file Form SH-7 once it has been passed. Within 30 days of the share capital change, submit a notification of the change in E-Form SH-7 to the registrar with the required fee and supporting documentation.
Step 7: Payment of e-Stamp Duty
Pay the e-stamp duty via MCA Portal on the higher authorized share capital amount if necessary.
Step 8: Modifications to each copy of the MOA and AOA
Each document of the company’s articles of association and Memorandum of association must contain a note describing any changes made.
Step 9: Intimation to the Stock Exchanges
Within 24 hours following the registration of the notice by the ROC, each Listed company must submit a copy of the revised MOA to the Stock Exchange. The same must be displayed on the company website within two working days.
Types of alteration of share capital
Increase in Authorized Capital – Authorized Capital is often called Registered or Nominal Capital. With this money, a firm is incorporated. The Memorandum of Association’s capital clause can be changed to allow the firm to increase its share capital.
Shares Consolidation – The corporation may change its share capital by combining shares of lesser denominations into those of larger denominations. The tribunal or court’s consent is required if the consolidation results in any changes to the shareholders’ voting rights.
Shares Sub-Division – By splitting the value of the shareholders’ shares, a corporation can also change the size of its share capital. Section 61 allows the corporation to split its higher-denomination shares into shares with lower denominations. The corporation can only do this if the Memorandum of association allows it.
If partially paid-up shares are divided, the requirement must be met so that the gap between the paid-up and unpaid amounts stays the same. By alteration of share capital in this manner, additional shares with smaller denominations end up in the hands of the shareholders.
Unissued shares be cancelled – The corporation may also cancel any unissued capital. The share capital is not changed as a result, though. The books of accounts are not altered, or a diary entry is not made using this technique.
Shares are converted to stock – By converting the fully paid-up shares into stock. The company can also change the share capital. Together fully paid-up shares are referred to as stock. Only if allowed by its articles of association is the corporation able to do this. The business may also revert to issuing shares instead of stock.
The term’ alteration of share capital’ refers to any modifications made to a company’s share capital, including procedures to raise or lower capital. These changes may significantly impact the company’s financial situation and shareholder value. These changes typically require shareholder approval and adherence to applicable rules and regulations. Hence, before making any changes to their share capital, corporations should carefully analyze the possible effects and obtain competent guidance.