Change In Share Capital

Share Capital means the capital of any organization in which rupees are divided into some predetermined number of shares of a fixed amount. To maintain a business, cash in the form of share capital is requisite. Any organization would engage itself in the utilization of cash to meet its necessity. For this purpose, a company may choose a method of gaining business premises and stock-in-trade, and so on. To expand its capital, a company first has to check with the current Authorized Share Capital. A company is not authorized to give the shares more than its authorized share capital. And for issuing such more shares, a company is required to increase the authorized share capital by way of changing the company’s Memorandum of Association of the Company. If a company is authorized by Article of Association, can modify the share capital, and in such a case, techniques recommended under the Companies Act, 2013 are needed to be followed by the company. Approval of registrar of companies is requisite for increase/decrease in share capital which can be acquired by filing the required forms.

Following the advice from Section 61 of the Companies Act 2006, there are a number of limited ways in which the allocated funds can be converted. 

Ways to choose to change share capital are:

• Allocation of new shares

Issuing (allocating) new shares often has the effect of increasing the company's share capital. However, it is necessary to understand the difference between ordinary shares and bonus issues.

Ordinary allotments: The average share of real stock shares issued after the creation of the first company. These shares can later be sold, or given, to existing or new shareholders to raise funds for investors, repay borrowers or pay employees, etc.

Bonus issues: The Company may decide to issue additional shares, free of charge, to existing shareholders in proportion to their savings; this is known as the issuance of a share bonus. While shares issued on ordinary allotment may not be sold or given, bonus issuance shares may only be distributed to existing shareholders and should be made free of charge.

• Reducing share capital

This is how companies reduce their share capital by any means, such as cancellation of shares or purchases (also known as purchases). As a result of the reduction in capital, the number of shares will decrease with the reduction. The market value of a company will not change; there are a few stocks available for trading. 

There are two ways of doing it:

• By special resolution on-court verification - this route should be taken by limited companies.
• With a special resolution along with a solvency statement of directors - this route is for limited private companies only

Decisions will need to be made by at least 75% of the eligible company members.

Within 15 days of the ruling, Form SH10 needs to be filed with Companies House, and:

1. a copy of the special shareholders' decision,
2. directors' statement of solvency,
3. Directors' compliance statement, stating that a solvency statement was made no later than 15 days before the date of the special decision.

• Sub-dividing or consolidating shared capital

This allows the company to adjust its share price and inventory values, without changing the total amount allocated. The section below will separate some, or all of its shares into multiple shares of the minimum value. Conversely, consolidation will consolidate some of its shares, or all of them, into a few shares of a higher value.

As long as the articles of association or shareholders do not preclude consolidation or division of shares, it is simply a matter of appealing the general resolution.

Filing of SH02 is a must in the Companies House within one month of the consolidation or subsequent clause. Following this, a capital statement should be filed to indicate change. After that, the membership register needs to be updated and issued new share certificates. 

• Reconverting stocks into shares

A company can go to Change in Share Capital by converting fully paid shares into Stock. The reversal of shares to fully paid stocks can also be made further. The conversion of a loan into an equity share equity is a common and reliable model for raising funds without direct investment. In order to take a smooth business in India sometimes, in that case, the debt is converted into share capital.

• Redenomination of shares

Also known as rescheduling of funds, this is the process of converting corporate shares into a limited amount of money in one currency into a fixed share of another.

For this to happen, a resolution, which is subject to limitations within the article of association, needs to be passed.

The redenomination itself takes place on the day the decision is passed, or at a later date as specified in the resolution. If the renewal does not happen even after 28 days, it will end.

There are some requisite documents for the process of change in share capital.

• descriptive statement of the announcement of EGM;
• Article of association’s valid certified copy of Board resolution for the alteration 
• Bank draft authenticating payment of request fee.
• Resolution in regards of permission of such consolidation or division and mentioning explanation for the equivalent;
• Shareholders resolution’s valid certified copy
• Modified Memorandum of Association.
• Copy of audited balance sheets of the last three years;
• Memorandum of appearance or vakalatnama and a copy of the Board's Resolution, whatever is available according to the requirement
• Modified Articles of Association
• Affidavit authenticating the concerned petition.
• Board resolution’s valid certified copy for alteration in MOA
• Credentials in proof of the arrangement of new capital and class of shares presented divided or consolidated;
• Two additional copies of the application
• Copy of the resolution passed in the general meeting of the associates;
• Any other applicable documents

A board notice is required to be issued at least seven days before the date of meeting mentioning the agenda of the meeting. And then hold a board meeting, passing the resolution in regards of change in share capital. The resolution passed must be passed with the consent of the members in shareholders meeting. Director is the person responsible to send notice of this shareholders meeting to the shareholders of the company and in lieu of holding this shareholders meeting, fix the time, date and venue for such meeting. Any announcement of such shareholders meeting shall be published 21 days prior to date of the meeting fixed. Such shareholders shall pass the resolution with the permission of the majority shareholders in the concerned meeting. After passing such a resolution, ROC (Registrar of the Companies) shall be notified about the change in share capital within a month from the passing of the said resolution. It is not optional but mandatory and if the registrar is not implicated about the alteration within a month from passing of the resolution, the company or its officers will be liable to a fine of Rs.10,000/- for every day of suspension and may be extended to Five Lakh Rupees.  

There are certain forms to be filed with the Registrar of the Companies. In case a special resolution is passed for a change in share capital then a Form MGT-14 is mandatory to be filed with ROC. In case of an ordinary resolution, Form Sh-7 shall be filed with ROC. These forms shall be filed to the Ministry of Corporate Affairs along with the designated fee. Section 117 of the Companies Act, 2013 defines that, in case of failure in registering the forms with Registrar of Companies, the company will be liable to a fine which shall not be less than five lakhs and may extend up to twenty-five lakhs rupees. Every office in fault shall be liable to pay the fine of One Lakh Rupees extending up to Five Lakh Rupees.