Introduction:
Alteration of share capital refers to an increase or decrease of a company’s authorized share capital. The Companies Act of 2013 permits companies to alter and make some modifications to their authorized share capital. Section 2(3) of the Companies Act, 2013 defines “Alter or Alteration” it includes the making of additions, omissions and substitutions. Section 2(84) of the Companies Act, 2013 defines “Share” as a share in the share capital of a company and it includes stock. In Commissioner of Income Tax v. Standard Vaccum Oil Co.,[1] the court observed “By a share in a company, we mean an interest measured in money and made up of diverse rights conferred on its holders by the Articles of Association of the Company, that together form a contract between him and the Company”. The Companies Act of 2013 expressly specifies the procedures for altering share capital. Only if its Articles of Association authorise it to alter the capital clause of its Memorandum of Association can it alter the share capital.
Types of Alteration in Share Capital under the Companies Act, 2013
- Increasing of authorized share capital: The registered and nominal capital with which the company was incorporated following the entire company registration procedure is referred to as authorized share capital. The company can increase its share capital by altering the capital clause in the Memorandum of Articles.[2]
- Consolidation of share capital: The company can also alter its capital structure by consolidating smaller denominations of shares into larger denominations of shares.[3]
- Conversion of share capital: The company’s capital structure can be altered by converting fully paid-up shares into stock. Then again convert the stocks into fully paid up shares.[4]
- Sub-division of share capital: The company sub-divides its shares in smaller amounts than that was fixed by the Memorandum of Articles.[5]
- Cancellation of share capital: Some shares are not taken by anyone, and the amount of share capital is diminished by the number of shares so cancelled.[6] Cancellation of shares under Section 61(1)(e) is not deemed as to be the reduction of share capital.
- Alteration of share capital is made by the order of the government.
- A company redeems any redeemable preference shares.
Procedure to be Followed for the Alteration in Share Capital
-Issue a board notice at least 7 days before the date of the scheduled meeting containing the agenda.
-Conduct a Board Meeting
-In the Board meeting, pass the Resolution for the Alteration of Share Capital.
-The resolution passed is subject to Shareholders Meeting approval.
-Fix the date, time, and location of the Shareholders Meeting.
-The Director has the authority to notify to send notice to the Shareholders meeting.
-A shareholder meeting notice should be sent out at least 21 days before the meeting.
-Conduct a shareholder meeting.
-Pass the Resolution with the consent of the majority shareholder’s approval.
-Within 30 days of the passing of Resolution, the Registrar of Companies should be notified of the Alteration in Capital. If the Registrar is not notified of the Alteration within 30 days, in case the company may be fined up to five hundred rupees each day of delay, with a maximum fine of five lakh rupees, in case an officer who is in default fine is one lakh rupees.[7]
– if the resolution passed is a Special resolution, then the company should file Form No. MGT-14 with the Registrar of Companies.
– if the resolution passed is an Ordinary resolution, then the company should file Form No. SH-7 with the Registrar of Companies.
Notice to the Registrar for Alteration of Share Capital
The notice to be given to the registrar for alteration of share capital is covered under Section 64 of the Companies Act, 2013 and Rule 15 of the Companies (Share Capital and Debenture) Rules, 2014. Form No. SH-7 is to be filed with the registrar of companies for any alteration of share capital. This form is a type of eForm, not a physical one. eForm SH-7 is required to be filed pursuant to Section 64 (1) of the Companies Act, 2013 and Rule 15 of Companies (Share Capital & Debentures) Rules, 2014.
Section 64(1) of the Companies Act, 2013 and Rule 15 of Companies (Share Capital & Debentures) Rules, 2014 explains under which conditions the notice should be given to the registrar regarding the alteration of share capital:
- Alteration of share capital made in any manner specified under subsection (1) of Section 61.
- Increasing the authorized share capital order of the government according to subsection (4) read with subsection (6) of Section 62 of the Companies Act, 2013.
- When a company redeems any redeemable preference shares.
- A company not having a share capital increases the number of its members
In these conditions, the company should give notice to the registrar within 30 days in the prescribed form i.e., eForm SH-7.
In the matter of M/s. Sambhavnath Infrabuild and Farms Private Limited (Demerged Company) and M/s. Eirian Consulting Private Limited(Resulting Company)[8], in this case, NCLT held that if the resulting company wants to increase their authorized share capital then the company need to fulfil obligations according to the scheme for sanctioning of the scheme and the resulting company should also undertake to comply with the provisions Section 61(1) read with Section 64 of the Companies Act, 2013 for the increase of share capital.
In case of merger or amalgamation or acquisition or compromise between the transferor company /transferor companies and transferee company, the authorized share capital of the transferor company shall also stand and added and combined with the authorized share capital of the transferee company, without any further act, instrument or deed or payment of any fee/ stamp duty and also the companies involved need not comply with the provisions Section 64 and Section 232 and also other applicable sections according to the Companies Act, 2013 and also Memorandum of Association and Articles of Association of the transferee company shall stand amended accordingly without any further act or deed on the part of the transferee company.[9]
In the matter of Aditya Finding Private Limited case,[10] the NCLT held that the transferee company undertakes to separately follow the necessary procedure under provisions of Section 61 read with Section 64 of the Companies Act, 2013 to sufficiently increasing its authorized share capital for allotment of share to the shareholders of transferor company as required for the purpose of effective implementation of the scheme.
Purpose of eForm SH-7
Whenever the company increases the share capital independently by a company or by the order of the Central Government order, or increase in members, or consolidation or division of shares, or redemption of redeemable preference shares or Cancellation of unissued shares in one class and increase in shares of another class, then the notice should be filed before the registrar within 30 days of such alteration of share capital.
Content in the eForm SH-7
-Field 1, 2 deal with general information about the company.
-Field 3 deals with the purpose of the form.
-Fields 4 and 7 deal with the alteration of share capital is made according to Section 61(1) of the Companies Act,2013.
-Field 5 deals with the alteration of share capital are made according to Section 62(6) of the Companies Act,2013.
-Field 6 deals with the additional capital (issuance of equity shares and preference shares)
-Field 8 deals with the redeem of redeemable preference shares.
-Field 9 deals with the revised capital structure of the company.
-Field 10 deals with the alteration of Articles of Association. If altered it should be uploaded.
-Field 11 and 12 deal with the payment of stamp duty.
-Field 13 deals with the existing capital structure of the company before making any changes.
-Finally declaration.
Attachments to the eForm SH-7
• If the company increases its share capital by itself, a certified authentic copy of the resolution for capital alteration is mandatory.
• In the case of a share capital increase with a central government order, a copy of the order is essential.
• In the case of a share capital increase with the Central Government, a copy of the tribunal’s order is necessary.
• A certified authentic copy of the board resolution authorizing the redemption of redeemable preference shares is displayed and is required in the case of redemption of redeemable preference shares.
• In the case of an increase in share capital, either independently or by order of the Central Government, or an increase in the number of members and altered Memorandum of Association is mandatory.
• If the articles of association are altered, the amendments must be reported.
• Working for calculation of ratios (in the case of conversions) is required in the case of a share capital increase according to a central government order.
Conclusion
Alteration of share capital can be done by increasing the authorized share capital or increasing the number of members or combine or division of shares or redemption of redeemable preference shares or cancelling of shares or by the order of the government. Companies need to follow the procedure for alteration of share capital and the companies need to be file a notice to the registrar about the alteration of share capital within 30 days of such alteration.
References:
- Change Authorized Capital of Company, (28 July, 2021, 10:45 AM)
https://cleartax.in/s/change-authorised-capital-company
- Dr. G.K. Kapoor and Dr. Sanjay Dhamija, Company Law and Practice (Edition 24, 2019).
Other Sources:
[1][1996] Comp. LJ 187.
[2]Section 61(1)(a) of the Companies Act,2013.
[3]Section 61(1)(b) of the Companies Act, 2013.
[4]Section 61(1)(c) of the Companies Act, 2013.
[5]Section 61(1)(d) of the Companies Act, 2013.
[6]Section 61(1)(e) of the Companies Act, 2013.
[7]Section 64(2) of the Companies Act, 2013.
[8]2017 SCC Online NCLT 12105.
[9]SM Strips Private Limited v. K.Lall Overseas Private Limited, 2018 SCC Online NCLT 23235; Cotys Buildcon Private Limited and others case, 2018 SCC Online NCLT 11548.
[10]2017 SCC Online NCLT 1102.
0 Comments