Startup

Procedure for the alteration of Share Capital

The Company which has decided for increasing its Capital, first it need to check the existing Authorised Share Capital because the Company cannot issue the shares beyond the authorized Share capital therefore for issuing the shares is required to increase the authorized share capital by altering the Memorandum of Association of the Company. The Company having the Share Capital may if so authorized by the Article of Association can alter the Share Capital the Company needs to follow the procedure as prescribed under the Companies Act, 2013.

Types of Alteration of Share Capital

As mentioned in Section 61 of the Companies Act, 2013^[1] there are different types of alteration of Share Capital are as under:

1. Increase in Authorised Share Capital;
2. Consolidation and division all or any of the Share Capital into shares of larger amount than existing Share;
3. Convert all or any of its fully paid-up shares into the stock and  re-convert that stock into the fully paid-up shares of any denomination;
4. Sub-divide its shares or any of them, into the shares of smaller amount than is fixed by the memorandum the proportion between the amount paid and the amount if any, the unpaid amount on each reduced share shall be the same as it was in the case of share from which the reduced share has been derived;
5. Cancellation of shares which at the date of 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 number of shares so canceled (not be deemed as Reduction of Share Capital).

Also, Read: Share Capital Types: What are the Types of Share Capital in India.

Steps to be followed for the alteration of share capital

• Step 1:

Convey the Board Meeting with respect to that issue the Board Meeting Notice at least 7 days before the date of Board Meeting

• Step2:

Hold the Board Meeting and pass the resolution for the alteration of Share Capital subject to the approval of the Shareholder Meeting.

• Step3:

For convening the Shareholder Meeting, fix the date, day, time, and venue and authorize a Director or any other person to send the notice to the Members.

• Step 4:

Issue the Notice of Shareholder Meeting at least 21 days before the date of the Shareholder Meeting. The shorter notice of Shareholder Meeting can also be called if the consent of atleast 95% of such part of paid-up capital of the Company has given the consent for the same.

• Step 5:

Hold the Shareholder Meeting, pass the special resolution for the same with the majority consent of the Shareholder.

• Step 6:

After passing the Resolution, file the Form SH-7 within 30 days from the passing of the Ordinary resolution.

Attachment:

• Certified True Copy of the Resolution with the explanatory Statement.
• Altered Memorandum of Association.

Draft Resolution for the increase in Authorized Share Capital

“RESOLVED THAT pursuant to the provisions of Section 13, Section 61 and all other applicable provisions, if any, of the Companies Act, 2013 read with Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force), and Article of Articles of Association, the Authorized Share Capital of the Company be and is hereby increased from Rs. 5,00,000 (Rupees Five Lakhs Only) divided into 50,000 (Fifty Thousand) Equity Shares of Rs. 10 (Rupees Ten only) each to Rs. 10,00,000 (Rupees Ten Lakhs Only) divided into 1,00,000 (One Lakhs) Equity Shares of Rs. 10 (Rupees Ten Only) each by the creation of additional capital of Rs. 5,00,000 (Rupees Five Lakhs Only) divided into 50,000 (Fifty Thousand) Equity Shares of Rs. 10 (Rupees Ten only) each and the Clause V of the Memorandum of Association of the Company be altered accordingly.”

“RESOLVED FURTHER THAT Board of director of the company be and is hereby authorized to make necessary compliance with Registrar of Companies and to do such other acts and deeds as may be necessary for giving effect to this resolution.”

Penalty:

If a Company fails to comply, then such Company and every officer who is in default shall be liable for a penalty of rupees One Thousand for each day during which such default continues or rupees Five Lakh whichever is less.

Conclusion

If the Company wants to issue the shares then it is mandatory that the existing Authorized Share Capital of the Company must increase up to the extent it required to issue the shares of the Company. Therefore it is mandatory to amend the Share Capital clause in the Memorandum of Association of the Company.

Our Recommendation: Increase in Authorized Share Capital.