Overview of Change in Share Capital

The amount of capital invested in a company is one of the most crucial decisions made by the founders during its incorporation stages. As the business grows, the company may seek to expand its operations, scale, or restructure. To achieve this, it might require additional funds, leading to an increase or change in the share capital of the company. Sometimes, the necessary capital might exceed the authorized capital limit at that time.

Authorized capital refers to the maximum amount of capital that a company can issue to its shareholders. According to Section 2(8) of the Companies Act, 2013, the authorized capital limit is specified in the Memorandum of Association under the Capital Clause. A company may take the necessary steps to increase or change the authorized capital limit to issue more shares, but it cannot issue shares beyond the authorized capital in any case.

Meaning of Share Capital

Share capital represents the total capital of a company, divided into a specified number of shares of fixed value. Every company requires funds in the form of share capital to operate its business. These funds are used to acquire business assets, stock-in-trade, and other necessary resources.

A company planning to increase its share capital must first check its current authorized share capital. Since shares cannot be issued beyond the authorized share capital, it is necessary to increase it by amending the Memorandum of Association.

If a company is authorized by its Articles of Association, it can modify its share capital by following the procedures outlined in the Companies Act, 2013. To increase or change share capital, approval from the Registrar of Companies (ROC) is required by filing the necessary forms.

Meaning of Authorized Capital and Nominal Capital

Section 61 of the Companies Act, 2013, along with Sections 13 and 64, governs the changes in share capital. As per Section 2(8), 'authorized capital' or 'nominal capital' refers to the maximum share capital amount approved by the company's memorandum.

Thus, a company can expand its business only up to the level of its authorized capital. If a business requires additional funds, the authorized capital must first be increased by following a set procedure.

Characteristics of Change in Share Capital

       1.      Share capital represents ownership rights in a company, carrying specific rights and liabilities.

       2.      Under the Sale of Goods Act, 1930, goods include any movable property except money, stocks, and shares. 

       3.      Share capital is identified by its number, but this does not apply to shares held by a depository.

       4.      Shares in a company are transferable as per the Articles of Association.

Types of Changes in Share Capital

As per Section 61 of the Companies Act, 2013, different types of changes in share capital include:

• 1.       Increase in authorized share capital.

  2.       Consolidation and division of share capital into larger denominations.

  3.      Conversion of fully paid-up shares into stock and vice versa.

  4.       Subdivision of shares into smaller denominations.

  5.       Reduction of share capital.

Extensive Types of Changes in Share Capital

1. Issued Share Capital

Issued share capital is the portion of authorized capital that a company issues for subscription. It is registered at nominal value and offered to the public.

2. Increasing Authorized Share Capital

Authorized share capital is the nominal amount with which a company is incorporated. To maintain financial stability, companies cannot arbitrarily issue shares to raise capital. Increasing authorized share capital requires amending the Memorandum of Association.

3. Consolidation of Share Capital

Companies can consolidate smaller share classifications into broader ones. If this results in changes in voting rights, approval from the Tribunal is required.

4. Conversion of Share Capital

Fully paid-up shares can be converted into stock and vice versa. Companies may also convert loans into equity shares under Section 62(3) of the Companies Act, 2013.

5. Sub-Division of Share Capital

Companies may subdivide their shares into smaller denominations, increasing the number of shares while decreasing individual share value.

6. Cancellation of Share Capital

If certain shares are not taken up, they may be canceled. Reduction of share capital is governed by Section 66 of the Companies Act, 2013. Tribunal approval is required for most reductions, except for buybacks and preference share redemptions.

Documents Required for Changes in Share Capital

1.       EGM notice and explanatory statement.

2.       Copy of the resolution passed at the general meeting.

3.       Updated Memorandum and Articles of Association.

4.       Certified copies of board resolutions.

5.       Certified copies of shareholder resolutions.

6.       Audited balance sheets for the past three years.

7.       Justification for share capital changes.

8.       Proof of new capital structure.

9.       Affidavit verifying the petition.

10.    Bank draft for fee payment.

11.    Vakalatnama or Board Resolution copy.

12.    Additional application copies.

13.    Any other relevant documents.

Registration Procedure for Change in Share Capital

Step 1: Board Meeting

1.       Issue a board notice with the meeting agenda at least seven days in advance.

2.       Hold a board meeting and pass a resolution for the change in share capital.

3.       Fix the date, time, and venue for the shareholders' meeting.

Step 2: Shareholders' Meeting

1.       Issue notice of the shareholders' meeting at least 21 days in advance.

2.       Hold the meeting and pass the resolution with majority approval.

Step 3: Filing with the ROC

1.       Notify the ROC within 30 days of passing the resolution.

2.       File Form MGT-14 if a special resolution is passed.

3.       File Form SH-7 if an ordinary resolution is passed.

Failure to file within 30 days may result in fines of up to INR 5 lakh for the company and up to INR 1 lakh per officer in default.

Fastzeal Assistance for Change in Share Capital

Fastzeal professionals are available to assist in the entire process of changing a company's share capital, ensuring compliance and smooth execution.

Our Services Include:

1.      Authorization in Articles of Association - Assisting in modifying the articles to allow share capital changes.

2.      Board Meeting Support - Notifying and conducting board meetings per legal requirements.

3.      Notice of EGM - Drafting and issuing notices to stakeholders.

4.      General Meeting Assistance - Ensuring a successful extraordinary general meeting.

5.      ROC Filing Support - Preparing and filing the necessary forms (SH-7, MGT-14) within the prescribed timelines.