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Change in Share Capital
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Alteration of share capital
A company upon its incorporation records the foundation upon which it is built – its objectives, founding members and importantly its Increase in Authorized Share Capital in its Memorandum of association (MOA). The Companies Act, 2013 defines authorized capital to mean the maximum amount of share capital, as authorized by the company’s memorandum i.e. the maximum value of shares the company may issue. What this denotes is the maximum value of securities that the company can issue in a legal manner. Now, as the business grows and expands, its natural needs foremost include getting funding. This can be in the nature of either debt or equity. Whenever a company chooses to go for the equity route to raise money, it is then supposed to first check the value of share capital already issued and subscribed against the authorized share capital of the company.
Generally, in all cases of share subscription fresh shares are issued to a new investor in the company and in all such cases where the ceiling of the authorized capital has already been reached, the company has to first undertake an increase in its authorized share capital. If the company wishes to expand its business or want to meet its working capital requirements then for inducting more capital it has to increase its authorized capital first.
At Unilex Consultants we provide you a hassle free increase in authorized capital procedure which would be dealt by our professionals within a time frame of 2-3 working days. Our team takes care of the documentation and aids in provide you the realistic estimation of cost.
Documents for alteration of share capital
New Name of Company
DSC and DIN of Directors
MOA & AOA of Company
Process for alteration of share capital
- Step-1: Gathering Information
- Step-2: Preparing documents
- Step-3: Filing necessary ROC forms
- Step-4: Updating of capital in MCA
Types of Share Capital
Authorized Share Capital: It is the maximum ceiling limit beyond which the company cannot issue shares without the alteration of share capital. Also called ‘registered capital’ or nominal capital’, this is the total of issued and unissued shares
Issued Share Capital: A part of ‘authorised capital’ that is issued or offered to the investors
Unissued Share Capital: As the name suggests, it is the capital that is still unissued and over time the company issues this to raise capital
Subscribed Capital: It is part of ‘issued capital’ that is fully subscribed by the public. If the issued capital = 12,000 shares, then the subscribed shares can be 10,000 shares as per the above-mentioned example #1
Called-Up Capital: It is the part of ‘subscribed capital’ that is called up by the company from investors in instalments. The capital that is still not called is known as ‘uncalled share capital’, which is the contingent liability of the shareholder
Paid-Up Capital: A portion of ‘called-up capital’ that is paid by the shareholder to the company
Reserve Share Capital: This is the special type of share capital that is only to be sold on the occasion of liquidation and bankruptcy. These shares make liquidation easier and have various restrictions attached to them
Different types 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.
Difference between Alteration of Share Capital and Capital Reduction
There is no minimum limit for Share Capital under Companies Act, 2013
The Authorized Capital of the Company is the maximum limit up-to which a Company can issue shares and Paid Up Capital is that partof the Authorized Capital for which Shareholders have made the investment into the Company.
MOA, AOA, documents for Board Meeting of the Company and documents for Extra Ordinary General Meeting (EGM) of the Company.
Required documents typically include the amended MOA, resolution passed by shareholders, and filings such as Form MGT-14 and Form SH-7, along with other relevant company records.
The process involves steps such as reviewing the Articles of Association, convening board and shareholder meetings, obtaining approvals, filing necessary forms, and updating documents.
In such cases, the AoA must be amended to include provisions for altering authorized capital in accordance with the Companies Act, 2013.
The EGM is convened to seek shareholder approval for the proposed increase in authorized capital through a resolution passed by voting.
Form MGT-14 is a filing required to register changes in the company's capital structure with the Registrar of Companies (RoC), ensuring compliance with regulatory requirements.
Form SH-7 is filed to officially notify the RoC about the augmentation of authorized share capital, providing details of the increase and relevant documents as per regulatory guidelines.
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