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ALTERATION OF SHARE CAPITAL ACS Neelam Somani

Alteration of share capital

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Page 1: Alteration of share capital

ALTERATION OF SHARE CAPITAL

ACS Neelam Somani

Page 2: Alteration of share capital

SECTION 61 OF COMPANIES ACT 2013 Companies Limited by shares or guarantee, if

authorised by article can alter its share capital by passing Ordinary Resolution, its memorandum in following ways:

Can increase Can consolidate its all or any of its existing

shares in larger denominations Can convert all or its any fully paid up shares

into stock or vise versa Sub-divide its existing shares into smaller

denominations Can cancel shares which have not been taken

up

Page 3: Alteration of share capital

THINGS TO REMEMBER Company requires authority in its article to

alter the capital clause in MOA, if article gives no power than article must be amended by a SPECIAL RESOLUTION before the alteration of capital.

Company shall file a notice in the prescribed form with ROC within 30 days of such alteration or increase or redemption along with altered MOA.

Contravention will lead to penalty extending upto Rs. 1000/day for which the default continues or Rs. 5 Lakhs, whichever is less.

Page 4: Alteration of share capital

WHEN SHARE CAPITAL STANDS AUTOMATICALLY INCREASED

When Government by its order states that any debentures issued to, or the loans obtained from a Govt. by the Company or any part thereof shall be converted into shares, on such T&C as issued by Govt.

Where T&C are not acceptable to Company than within 60 days from the date of communication of such order, appeal to the TRIBUNAL.

Where no appeal has been made or appeal is dismissed than MOA shall be altered as on the date order passed by Govt. or on date when appeal was dismissed.

Page 5: Alteration of share capital

STOCK Definition of shares states that “shares

means a share in the share capital of the company and includes stock

Only fully paid up shares can be converted into stock

After conversion of shares into stock, the stock holder may own Rs.1000 worth stock where formerly he held 100 shares of Rs. 10 each.

Page 6: Alteration of share capital

REDUCTION OF SHARE CAPITAL After confirmation by the TRIBUNAL on

an application by the company, company limited by shares or limited by gurantee, having a share capital may by a special resolution can reduce the share capital

It can reduce the liability of share in respect of share capital not paid

It can cancel paid up share capital which is lost or is unrepresented; or

It can Pay off any paid share capital which is in excess of the wants of company

Page 7: Alteration of share capital

POINTS TO REMEMBER Reduction of share capital will not be

allowed in case of arrears in the Repayment of Deposits and Interest thereon.

Tribunal will give notice of every application made to the; Central Government, Registrar, SEBI in case of listed companies and to the Creditors of the Company

Tribunal shall take into consideration the representation made to it by any of the party to whom it had served notice, representation must be received in 3 Months from the receipt of notice.

Page 8: Alteration of share capital

DIMINUTION OF SHARE CAPITAL IS NOT REDUCTION Where company cancels shares which

have not been taken up Where redemable preference shares are

redeemed according to the provisions Where shares are forfeited for non

payment of calls In case of buy-back Where reduction of share capital is

effected because of the order passed by Tribunal sanctioning any compromise and arrangement

Page 9: Alteration of share capital

REDUCTION OF SHARE CAPITAL WITHOUT SANCTION OF THE COURT

Surrender of shares

&

Forfeiture of shares

Page 10: Alteration of share capital

RIGHTS & DUTIES

It is the right of Creditor’s to object against the reduction

Registrar will issue the certificate of reduction which will be conclusive

If court and other parties have given consent for reduction than the word “and reduced” shall be added to the name of company for a specified period

Page 11: Alteration of share capital

CASE LAW Walker & smith Limited(1903)

The Registrar had issued the certificate of reduction

It was discovered later that the company had no authority under its articles to reduce capital

But the company had gone through with the reduction

It was held that reduction was not allowed to be upset

Page 12: Alteration of share capital

BUY BACK OF SECURITIES Company can purchase its own shares

out of:

Its free reserves

or

Securities premium account

Page 13: Alteration of share capital

AUTHORISATION AND QUANTUM

AOA should authorise such buy-back

Board of Directors can authorise buy-back upto 10% of the paid up capital and free reserve by means of passing a resolution in the meeting

Share holders by a SR can approve buy back upto 25% of paid up capital and free reserve in that year

Page 14: Alteration of share capital

REQUIREMENTS Letter of offer is required to be filed with ROC

before buy back in Form No. SH-8 Letter of offer should be dispatched to security

holder of the company after filling it with ROC within 21 days of such filing

Offer shall remain open for atleast 15 days but not more than 30 days

Ratio of secured and unsecured debt should not be more than TWICE the paid up share capital and free reserves of the company after buy back

Securities to be bought back should be fully paid

Page 15: Alteration of share capital

REQUIREMENTS No buy back shall be made within a period of

one year Buy back shall be completed within a period of

one year from the date of passing of SR or by Board

Before making buy back, company shall file a declaration of solvency in Form SH-9 with SEBI/ROC as the case may be

After buy back it should not make issue of same kind of shares or other securities including allotment within a period of 6 months

Register of buy back should be maintained

Page 16: Alteration of share capital

REQUIREMENTS Within 30 days of buy back company

shall file returns with ROC in Form No. SH-11 & SH-15

In case of any contravention it shall be punishable with fine which shall not be less than 1 lakh and may extend to 3 lakhs, every officer in default shall be punished with imprisonment which may extend to 3 years or fine same as given

Sum equal to the nominal value of shares so purchased shall be transferred in capital redemption reserve account

Page 17: Alteration of share capital

PROHIBITION OF BUY BACK Through any subsidiary company

including its own subsidiary company Through any investment company or

group of investment company If default is made in repayment of

deposits, interest payment, redemption of debentures or preference shares, payment of dividends, repayment of any term loan

Buy back is not prohibited if 3 years have elapsed after such default cease to subsist

Page 18: Alteration of share capital

THANK YOURegards,

Neelam Somani & Associates