Alteration of Share Capital
Drafting of revised MOA
Filing of SH-7 and MGT-14 form with MCA
Filing of PAS-3 for allotment of shares
Preparation of necessary documents and completing compliances as per Secretarial standards
₹ 4,999/- only
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Alteration of share capital is a crucial step for companies aiming to adapt their capital structure to meet business requirements and regulatory compliance. By altering share capital, companies can issue additional shares, convert fully paid-up shares into stock, and convert stock back into fully paid-up shares.
In this article, we will delve into the concept of share capital, its components, and the different ways companies can alter their share capital to support their growth and operational needs.
Understanding Share Capital:
Share capital, as per the Companies Act, 2013, refers to the total amount raised by a company through the issuance of common stock, equity stock, preferred stock, or preference share capital. It can be raised through public offerings like IPOs and FPOs or private placements. In accounting terms, the units of stock are known as “shares.”
Share capital consists of two essential components:
List of Documents Required
Memorandum of Association
Digital Signature Certificate (DSC)
Certificate of Incorporation
Resolution and Notices (Formats will be provided)
Details regarding the revised share capital
Valuation report ( if available)
How Does It Works?
Callback From Our Team
Final Quote And Payment
Filing of Forms With ROC (1 Day)
Issuance of Revised MOA (7 Days)
Types of Share Capital:
- Authorised Share Capital: The maximum limit set by the company for issuing shares. It includes both issued and unissued shares and can be altered to raise additional capital.
- Issued Share Capital: The portion of authorised capital that has been offered to investors.
- Unissued Share Capital: The capital that remains unissued and can be issued by the company to raise funds.
- Subscribed Capital: The part of issued capital that has been fully subscribed by the public or investors.
- Called-Up Capital: The portion of subscribed capital that the company has called up and received from shareholders. Uncalled share capital represents the contingent liability of shareholders.
- Paid-Up Capital: The amount of called-up capital that shareholders have paid to the company.
- Reserve Share Capital: A special type of share capital sold only during liquidation or bankruptcy proceedings, with specific restrictions attached to it.
Ways to Alter Share Capital:
- Increase in Authorized Share Capital: By issuing fresh shares, companies can increase their authorized share capital. This process involves legal procedures and filing forms with the Registrar of Companies (ROC).
- Consolidation and Sub-division of Share Capital: Companies can consolidate their shares into larger denominations or sub-divide them into smaller units, depending on their capital requirements.
- Cancellation of Share Capital: Share capital can be canceled by reducing the number of issued shares, resulting in a decrease in the company’s overall capital.
- Conversion of Share Capital: Companies can convert fully paid-up shares into stock, which represents shares without any nominal value. Similarly, stock can be converted back into fully paid-up shares.
Alteration of share capital is a crucial process that allows companies to adapt their capital structure to meet their changing needs. By altering share capital, companies can issue new shares, convert stock, and make other changes to support their growth and comply with legal requirements.
The term “alteration of capital” refers to a change in a company’s capital structure. It involves modifying the company’s share capital, which represents the ownership interest in the company held by its shareholders.
The different kinds of alteration of share capital are as follows:
- Increase in share capital: A company may decide to raise additional funds by issuing new shares to existing or new shareholders. This can be done through a rights issue, private placement, or public offering. By issuing new shares, the company increases its share capital and potentially expands its ownership base.
- Share buybacks: A company may repurchase its own shares from existing shareholders, which reduces the number of outstanding shares. This can be done to return excess cash to shareholders, enhance earnings per share, or consolidate ownership.
- Share consolidation or stock split: Share consolidation involves reducing the number of existing shares and increasing their nominal value. This process reduces the number of outstanding shares while maintaining the same total capital value. On the other hand, a stock split increases the number of shares while reducing their nominal value. These actions are often taken to adjust the share price and make it more accessible to investors.
- Conversion of securities: Some companies may have convertible securities, such as convertible bonds or preferred shares, which can be converted into common shares. The alteration of capital occurs when these securities are converted into equity shares, potentially impacting the company’s capital structure.
- Capital reorganization: Companies may undergo capital reorganizations to simplify their capital structure, merge different classes of shares, or create new share classes with different rights and privileges. This could involve canceling existing shares and issuing new ones to reflect the changes
Under the Companies Act, 2013, the alteration of capital refers to making changes to a company’s share capital. The Act provides specific provisions and procedures for altering the capital structure of a company in India. It involves modifying the company’s share capital, which represents the ownership interest in the company held by its shareholders.
The Companies Act, 1956 was the previous legislation governing companies in India before the enactment of the Companies Act, 2013. Under the Companies Act, 1956, the alteration of capital also referred to making changes to a company’s share capital.
The two main types of share capital are:
Equity Share Capital: Equity share capital represents the ownership interest in a company. Equity shareholders are the residual owners of the company and have voting rights and the right to receive dividends. In the event of liquidation, equity shareholders have a claim on the company’s assets after all other obligations have been met. Equity shares are also known as ordinary shares or common shares. They provide shareholders with a share in the company’s profits and the right to participate in its management through voting at general meetings.
Preference Share Capital: Preference share capital refers to shares that carry certain preferential rights and privileges compared to equity shares. Preference shareholders have a fixed dividend rate or a predetermined dividend amount that must be paid to them before any dividends can be distributed to equity shareholders. In the event of liquidation, preference shareholders have priority over equity shareholders in receiving their share of the company’s assets. However, preference shareholders typically do not have voting rights or have limited voting rights compared to equity shareholders.
Section 61 of the Companies Act, 2013 gives the power to company to alter its share capital.
Increase in the share capital, consolidation and division of share capital, cancellation of share capital, subdivision and conversion of share capital are all examples of alteration in share capital.
Share transfers from one person to another or the split of share certificates is not an alteration of share capital.
Sh-7 is a form that needs to be filed with the Registrar of the Companies to intimate about any alteration of share capital.
Increase in the share capital, consolidation and division of share capital, cancellation of share capital, subdivision and conversion of share capital are all included in alteration of share capital.
The stamp duty on alteration of share capital depends upon the amount of share capital that is being altered and the state in which the registered office of the company is situated.
The documents required for SH-7 are as follows:
- Board Resolution
- Special/ordinary resolution (as the case may be)
- Altered MOA.
SH-7 can be submitted at the time of any alteration in share capital.
SH-7 is filed to intimate the Registrar about any changes or alterations in the share capital.
The alteration of capital clause is a provision included in a company’s Memorandum of Association (MOA) that grants the company the power to alter its share capital. This clause outlines the procedures and conditions under which the company can make changes to its share capital. The exact content of the alteration of capital clause may vary depending on the specific company and its requirements, but it typically includes elements such as power to alter share capital, procedure for alteration, conditions and restrictions etc.
The following alterations does not require court approval:
- Increase in the share capital
- consolidation and division of all or any of its share capital into shares of a larger amount than its existing shares.
- Conversion of all or any of its fully paid-up shares into stock, and reconvertion of that stock into fully paid-up shares of any denomination.
- Sub-division of shares, or any of them, into shares of smaller amount than is fixed by the memorandum.
- Cancellation of shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
The difference between change and alteration in share capital lies in the specificity of the action being undertaken. Change in share capital is a broader term that encompasses all types of modifications to the capital structure including share transfers while alteration of share capital specifically refers to the more formalized and significant modifications that involve adjustments to the share capital and related provisions in accordance with legal requirements.
The alteration in share capital is used for various purposes depending on the needs and objectives of a company. Some common uses of share capital alteration include:
Fundraising: Alteration in share capital is often employed as a means to raise additional funds for the company. By increasing the share capital, a company can issue new shares and invite investments from existing shareholders or external investors. The raised capital can be used for business expansion, research and development, working capital requirements, debt repayment, or other financial needs.
Capital Restructuring: Share capital alteration allows a company to restructure its capital to align with its changing financial requirements. It can involve actions such as increasing or reducing share capital, changing the nominal value of shares, converting shares into a different class, or altering the rights and privileges attached to shares. Capital restructuring enables the company to optimize its capital structure, enhance financial stability, or comply with regulatory requirements.
Acquisition and Merger: Alteration in share capital is frequently utilized in the context of acquisitions and mergers. When a company intends to acquire another company or merge with it, share capital alteration may be necessary. It allows for the issuance of new shares as consideration for the acquisition or merger, facilitating the consolidation of businesses and shareholders’ interests.
Special/ordinary resolution is required to be passed depending on the type of alteration of share capital.
Form SH-7 is required to be filed with ROC for alteration of share capital.
Sh-7 approval might take around 4-5 days or more depending upon the jurisdiction of ROC.
Section 61 of the Companies Act, 2013 gives the power to the company to alter its share capital.
The three purposes for which alteration of share capital can be done are:
Fundraising and Capital Expansion: One of the primary purposes of altering share capital is to raise additional funds for the company. By increasing the share capital, the company can issue new shares to investors, thereby attracting investment and increasing its financial resources. The additional capital can be utilized for business expansion, research and development, acquisitions, or other strategic initiatives.
Capital Restructuring: Altering share capital provides a means for a company to restructure its capital to align with its changing financial requirements. This can involve actions such as increasing or reducing share capital, subdividing or consolidating shares, or converting shares into stock or vice versa. Capital restructuring allows the company to optimize its capital structure, enhance financial stability, or meet regulatory requirements.
Facilitating Acquisitions and Mergers: Altering share capital can facilitate acquisitions, mergers, or other corporate restructuring activities. For example, a company may alter its share capital to issue new shares as consideration for acquiring another company or merging with another entity. This enables the company to issue shares to the shareholders of the acquired or merged entity, facilitating the consolidation of businesses and shareholders’ interests.
Special resolution is passed when 75% of members’ consent is required for alteration of share capital.
The legal requirements for alteration of share capital are as follows:
- Checking for authorisation in articles of association;
- Board meeting and Board Resolution;
- Member’s consent for alteration;
- Filing of Form SH-7 along with stamp duty with Registrar of Companies.
To alter the share capital, first check whether the articles of association authorises to alter the share capital. If no, then first articles needs to be amended. Afterwards, board resolution should be passed and then member’s consent should be taken through ordinary/special resolution to alter the Memorandum of articles. Then, the last requirement is to file Form SH-7 to report the alteration to Registrar alongwith payment of stamp duty