Any fluctuations in the share capital of a company are known as alterations of share capital.
The share capitals are of two types-
- Equity Share Capital
- Preference Share Capital
The companies that can alter or make some changes in their authorized share capital following a specific procedure for the Alteration of share capital have been mentioned in the companies Act, 2013.
It can only be done only if it is authorized by its Articles Association for altering the capital clause of its Memorandum of Association.
Important steps to follow for Alteration of share capital
Step 1: Firstly, the company on the first face needs to be checked and evaluated whether the Articles of Association authorize it or not to increase the share capital. If the company’s Articles of Association do not permit or allow, it needs to be done to alter it.
Step 2: The Company has to arrange a board meeting where it will be mandatory to get approval from the director for increasing the authorized share capital.
Step 3: Then the company should call for an extraordinary general meeting of the shareholder by the company where a notice needs to be sent to them a notification with a clear explanation, reason, and agenda. The resolution needs to be passed to alter the Memorandum of Association and Articles of Association that needs to be changed for increasing the authorized share capital.
Step 4: The whole procedural part of increasing the company’s authorized share capital and corresponding alterations in the Memorandum of Association and Articles of Association by resolution is done. The company approves the board to file all the necessary forms and resolutions with ROC for having jurisdiction.
- It depends on the company if they think it is required and is beneficial for the company’s growth would increase their share capital by issuing new shares.
- The company might also decide to divide all the share capital into shares of a large amount.
- Also, the company can decide to divide its share capital into lower denominations.
- Also, the company can choose to cancel the shares that haven’t been claimed yet and reduce its share capital.
Can you reduce Share Capital?
Once the Tribunal confirms the company’s application, limited by shares and guarantee, the company shall deliver a certified copy of the order of the Tribunal and of a minute approved by the Tribunal showing—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be paid-up on each share,
to the Registrar within thirty days of the receipt of the copy of the order, who shall register the same and issue a certificate to that effect.
The share capital and allocation of a company can be reduced by special resolution.
Section 66 of the companies Act, 2013 governs the reduction of share capital, which is vital to confirm by the decision of the Tribunal in writing.
To reduce the share capital, a board meeting needs to be conducted by the company, a notice specifying every detail of the general meeting needs to be given to every shareholder and concerned person.
Every notice should have a proper detail mentioning the place, date, day, and time of meeting and should have a business statement.
When can’t you reduce share capital?
The reduction of share capital is not allowed only when there are arrears in the repayment of interest and rules alike.
The creditors have full authority to object to the reduction in its share capital. To reduce the company’s share capital, the registrar needs to issue a certificate to the company for removal.
Probable reasons to reduce the share capital of a company. Some of the most crucial reason for the reduction of share capital is-
- If the company is getting a surplus capital in return.
- The company wants a simplified capital structure.
- To keep a sufficient reserve for reducing the share capital.
Not only confined to this, but the company’s assets also play an essential role in the Alteration of the company’s share capital.