Change in Share Capital - Overview

The amount of investment used as capital to start a company is one of the most critical points, and the decisions must be made by the supporters very carefully as it is the crucial place where the company is in its registration stage. As the business starts to pick up, the Company may find a way to expand its business operations, expand in scale, size, or structure. To make that ambition a reality, it may require more funds and investments, generally known as increasing or changing the share capital of the Company. Sometimes, the number of necessary funds might exceed the limit of the capital that was authorized at the time.

The authorized capital is an important investment where the Company can go for an option to issue the shares to the shareholders. According to Section 2(8) of the Companies Act 2013, the Authorised Capital limit is mentioned in the Capital Clause Of the Memorandum of Association of the company. At this point, the company has to take the necessary steps to Increase or Change the authorized capital limit so that it can issue more shares. However, the company cannot grant shares exceeding the authorized limit at any point.

Meaning of Share Capital

The word capital means 'Share Capital' of the company, where the amount is divided into a preset number of shares into a fixed amount of shares or amount. Every Company needs cash in the form of share capital to keep up their business activities. The company utilizes cash to proceed with its necessary activities to gain in business premises, stock-in-trade and so on.

The Company which has chosen for expanding its Capital, the first thing that it has to check is the current Authorized Share Capital. It is because the Company can't give the shares past the authorized Share capital in any way, for issuing the shares it is required to increase the authorized share capital by changing the Memorandum of Association of the Company.

The Company owning Share Capital, if so passed by the Article of Association, can alter its Share Capital. In this case, the Company is required to follow the procedure as per the Companies Act 2013. For the increase or change in the share capital of the company, it is required to obtain approval by filing the required forms to the registrar of companies.

Characteristics of Change in Share Capital

As per the Sale of Goods Act of 1930, goods involve any movable property other than special cases, money, stock, and shares.

Share Capital is an exclusive right to predefined money of the share capital, holding with its specific rights and financial obligation.

Share Capital is distinguished by its number, even though this proviso will not have any substantial impact on a share amount held by a person whose name is enrolled as the owner of that particular share in the record of a depository.

Also, a share of any part of the company that is the movable property can be transferable in the way mentioned in the AOA of the Company.

Also, a share of any part of the company that is the movable property can be transferable in the way mentioned in the AOA of the Company.

As provided in Section 61 of the Companies Act 2013, different types of Change in Share Capital are associated.

Those Are As Follows:-
Increase in ‘Authorized’ Share Capital;

Combination and division of all or any of the Share Capital into shares of bigger amount than existing Share;

Convert all or any of its completely settled-up shares into the stock and re-convert that stock into the completely settled-up portions of any division;

Sub-division of its shares into the portions.

The reduction of shares.

Procedure to Change the Authorised Capital

Read-through of the Articles of Association
The AOA or Articles of Association is the official document which contains the rules and regulations of the internal working of the organisation. Therefore, it is better to verify the Articles of Association before taking action regarding the increase or reduction in the authorized capital, to check whether any rule exists that gives away or an option to a change in the capital of the company.

If such provision exists in AOA, then the process becomes very simple. But if the provision does not exist, then first the company has to amend the Articles of Association under Section 14 of the Companies Act, 2013 ('Act”), and then the company can proceed with the modification of authorised capital.

Board Meeting to be conducted
Formal notice to be sent to all the directors mentioning the agenda of the meeting at least 7 days earlier to their respective registered addresses.

At the Board Meeting, a Special Resolution to call for an EGM and issue notice consistent with the provision of Section 101 of the Act, where the altered object clause on authorized capital in the MOA of the company can be submitted for approval by authorizing an Ordinary Resolution. The proposed change shall be as per the provisions of Section 60 of the Act.

Notice to be presented to the shareholders concerning the particulars of the board meeting, that includes the agenda, time, date and venue of the meeting.

The notice of the Extraordinary General Meeting. has to be given 21 days prior to the date of the EGM is to be held.

The notice must mention the method of voting in which way the resolution is passed at the Extraordinary General Meeting.

Notice of the EGM is to be granted to all of the following:-.
1. Directors

2. Shareholders

3. Auditors

Conducting the Extraordinary General Meeting

After the meeting, the increase in the share capital matter is submitted forth. The voting process then is conducted in a preset manner to conclude regarding the share capital matter. After getting the approval, and the resolution is authorized, the explanatory report is attached, and the increase in the Share Capital is made.

Filing with the Registrar of Companies

Within 30 days of the resolution being authorized, a company should file eForm SH-7 and eForm MGT – 14 (if applicable) attached with all the documents and prescribed fees with the Registrar.

1. Form MGT – 14: This form has to be submitted to the RoC within 30 days of passing the increase in share capital resolution.

2. Form SH – 7: This form has to be submitted to the RoC within 30 days of passing the increase in share capital resolution. The main aim of this form is to suggest the Registrar regarding the information about the increase in the authorised capital of the company. The forms must be filed within the stipulated time period in order to stay away from penalties or subsequent punishment

Frequently Asked Questions