What is Alteration of Share Capital? Different kinds of Alteration of Share Capital, and Process for Alteration of Share Capital

Introduction

As the firm grows, the company may consider expanding its operations, size, scale, or structure. To make that ambition a reality, additional money may need to be pumped into the company, thus boosting the company’s share capital. The amount of capital required may occasionally exceed the allowed capital limit at the moment. The maximum amount of capital for which the Company can issue shares to shareholders is known as the authorized capital. In this article, we will cover information on “What is Alteration of Share Capital?”, Different kinds of Alteration of Share Capital, the Difference between Alteration of Share Capital and Capital Reduction, and the Process for Alteration of Capital.

What is Alteration of Share Capital?

Alteration in Share Capital occurs when a company’s existing share capital structure is altered. The Alteration in Share Capital Clause must be authorized by the Articles of Association (AOA). The shares of a public firm are subscribed to by the public. As a result, the Public Limited Company’s Memorandum of Association (MOA) must be changed. The capital clause in the MoA can be changed at any moment throughout the company’s existence.

Process for Alteration of Share Capital

The following are the stages involved in changing the share capital:

• Changes in AOA (Articles of Association)

The Articles of Association is a legal document that provides the rules and regulations that govern the company’s internal operations. As a result, before any action on the authorized capital may be done, the Articles of Association must be checked to see if there is a provision that allows for a change in the approved capital of the company.

If the provision exists, the process is made easier. If the provision does not exist, the business must first revise its Articles of Association, as set out in Section 14 of the Companies Act, 2013 (“Act”), before proceeding with the change in authorized capital.

• Need to conduct a Board Meeting

1. At least 7 days prior to the meeting, a notice of the agenda will be issued to the directors at their respective registered addresses.

2. Pass a Board Resolution calling for an Extraordinary General Meeting and issuing notice pursuant to Section 101 of the Act, where the changed language on authorized capital in the Memorandum of Association can be offered for approval by passing an Ordinary Resolution. The proposed amendment must comply with the terms of Section 60 of the Act.

3. The shareholders must be provided notice of the meeting’s details, including the agenda, date, time, and location.

4. The mode of voting to be used for passing the motion at the Extraordinary General Meeting must be specified in the notice.

5. An extraordinary General Meeting needs to be issued to all Auditors, Shareholders, and Directors.

6. The notification of the EGM must be given at least 21 days before the date of the EGM.

7. A shorter notice period can be issued if and only if the permission of at least 95 percent of the members entitled to vote at the meeting is given.

• Holding of EGM (Extraordinary General Meeting)

The topic of the increase in share capital is submitted to the meeting after it has begun. After that, voting takes place in a set order to reach a decision on the issue. Once the approval has been gained and the resolution has been passed, the explanatory statement is appended, and the Authorised Capital is increased.

• ROC (Registrar of Companies) Filings

A corporation must file eForm SH-7 and eForm MGT – 14 (if applicable) with the Registrar within 30 days of the resolution being passed, along with the specified fees.

• Filing of MGT – 14 Form

This form must be filed with the RoC within 30 days of the resolution being passed. The form must be submitted using the MCA portal.

• Filling of Form SH – 7

This form must be submitted to the RoC within 30 days of the resolution being passed. The purpose of this form is to notify the Registrar of the details of the increase in authorized capital. The form should be submitted using the MCA (Ministry of Corporate Affairs) portal.

The Stamp Duty can be paid electronically through the Ministry of Corporate Affairs by attaching the necessary documents:

• Meeting Invitation

• A resolution certified copy

• Altered Article of Association or MOA (Memorandum of Association)

Difference between Alteration of Share Capital and Capital Reduction

The terms Alteration of Share Capital and Reduction of Share Capital are frequently confused by entities. It is critical to understand the difference between these two phrases because when a company changes its capital, the authorized capital is affected; on the other hand, when a company reduces its capital, a portion of the capital is taken and invested for the betterment of the business. The definitions of these two terms are given below.

 Different kinds of Alteration of Share Capital  

According to Section 61 of the Companies Act of 2013, there are five distinct ways to change the share capital:

• Sub Division of Shares

A company’s share capital can also be changed by dividing the value of the shares held by its shareholders. The corporation can divide its higher-denomination shares into lesser denominations under Section 61. The corporation can only do so if the agreement of the association permits it. If partially paid-up shares are subdivided, the condition that must be met is that the difference between the paid-up and unpaid amounts remains the same. This method of changing share capital results in shareholders possessing a greater number of shares with lower denominations.

• To Increase an Authorized Capital

Registered or nominal capital is another name for authorized capital. This is the amount of money needed to start a business. By amending the capital clause in the Memorandum of Association, the company can increase its share capital.

• Conversion of Shares into Stock

The Company can also change the capital of its shares by converting fully paid up shares into stock. The whole number of fully paid up shares is referred to as stock. The corporation can only do so if its articles of association allow it. The corporation can also convert its equity back into shares.

• Consolidation of Shares

The company can also change its share capital by combining shares of lower denominations into larger denominations. If the consolidation results in a change in the voting rights of shareholders, the tribunal or court must provide authorization.

• Canceling the unissued Shares 

The corporation can also cancel any outstanding debt. However, this does not result in a change in share capital. There is no journal entry and no treatment in the accounts books when using this method.

Conclusion

The Companies Act of 2013 specifies the procedure for changing share capital. The only way to change the Company’s share capital is to change the MoA and AoA. A rise in the company’s overall capital is always beneficial to the company’s investors.