Change in Share Capital

Changing share capital online in India opens opportunities to maximize benefits from investors by altering the company’s share capital. The expert team at Ruchir Jain & Co is here to guide and assist you through the process efficiently and at minimal cost, ensuring a seamless and successful outcome. Share capital represents the investment used as capital to establish a business and can serve as a valuable resource in critical situations.

Get Free Consultation

Change in Share Capital - Overview

The initial investment used as capital to establish a company is a critical factor, requiring careful consideration from the stakeholders during the registration phase. As the business grows, the company may aim to expand its operations, scale, or structure. To achieve these goals, additional funds and investments might be needed, often necessitating an increase or alteration in the company’s share capital. In some cases, the required funds may exceed the authorized capital set during incorporation.

Authorized capital plays a key role in enabling a company to issue shares to its shareholders. Under Section 2(8) of the Companies Act, 2013, the authorized capital limit is specified in the Capital Clause of the Memorandum of Association (MOA). If the company needs to issue more shares, it must take appropriate steps to increase or modify the authorized capital limit. It is important to note that a company cannot issue shares exceeding this limit at any time.

Meaning of Share Capital

The term "capital" refers to the share capital of a company, which is divided into a predetermined number of shares, each assigned a fixed value. Share capital is essential for every company to fund its operations and support business activities. This capital is utilized to carry out essential operations, such as acquiring business premises, stock-in-trade, and other necessities.

When a company decides to expand its capital, the first step is to review its current authorized share capital. This is crucial because a company cannot issue shares beyond its authorized share capital. To issue additional shares, the company must increase the authorized share capital by amending its Memorandum of Association (MOA).

If permitted by its Articles of Association (AOA), a company can modify its share capital. In such cases, the company must comply with the procedures outlined in the Companies Act, 2013. To increase or change its share capital, the company is required to seek approval and submit the necessary forms to the Registrar of Companies (ROC).

Characteristics of Change in Share Capital

Under the Sale of Goods Act, 1930, goods refer to any movable property, excluding specific exceptions such as money, stocks, and shares.
Share Capital represents an exclusive claim to a predefined amount of money, accompanied by specific rights and financial obligations. It is identified by its unique number, although this does not affect the shareholding of an individual whose name is registered as the owner of the share in the records of a depository.
Shares, being movable property, are transferable in accordance with the procedure outlined in the company’s Articles of Association (AOA).
As per Section 61 of the Companies Act, 2013, several forms of changes in share capital are permitted, including:

Increasing Authorized Share Capital – Expanding the company’s authorized share capital limit.
Consolidation and Division – Combining and redividing shares into larger denominations than previously existing.
Conversion to Stock and Reconversion – Transforming fully paid-up shares into stock and reconverting the stock back into fully paid-up shares of a specific division.
Subdivision of Shares – Splitting shares into smaller denominations.
Reduction of Share Capital – Decreasing the company’s share capital as permitted by law.

Documents needed for General Changes in Share Capital

The following documents are required for the process:

Notice of EGM along with a detailed report.
Altered Memorandum of Association (MOA).
Copy of the resolution passed at the general meeting of the members.
Amended Articles of Association (AOA).
Certificate confirming the new capital structure and details of any share classes introduced, consolidated, or divided.
Certified copy of the Board resolution for modifications in the AOA.
Certified copy of the Board resolution for modifications in the MOA.
Certified copy of the shareholder resolution.
Two copies of the application for submission.
Audited balance sheets for the past three years.
Resolution for consolidation or division of shares, along with a justification for the action.
Legal document supporting the application.
Bank draft confirming payment of the application fee.
Vakalatnama or Memorandum of Appearance along with the necessary Board resolution, if applicable.
Any other required documents as specified by the authorities.

Procedure to Change the Authorised Capital

Review of the Articles of Association (AOA): The Articles of Association (AOA) is the official document that outlines the rules and regulations governing the internal operations of the company. Before taking any action related to increasing or decreasing the authorized capital, it is essential to review the AOA to determine whether it contains provisions that allow for changes to the company's capital structure. If such provisions are already included in the AOA, the process becomes straightforward. However, if the AOA does not provide for capital changes, the company must first amend the AOA under Section 14 of the Companies Act, 2013, before proceeding with the modification of the authorized capital.

Conducting a Board Meeting: A formal notice must be sent to all directors at least 7 days in advance, specifying the agenda of the meeting. During the Board Meeting, a Special Resolution should be passed to call an Extraordinary General Meeting (EGM) and issue a notice in accordance with Section 101 of the Companies Act. The notice will propose the changes to the object clause regarding authorized capital in the Memorandum of Association (MOA) for approval through an Ordinary Resolution, as per Section 60 of the Act. A notice must also be sent to shareholders detailing the specifics of the board meeting, including the agenda, time, date, and venue. The notice should explain the method of voting through which the resolution will be passed at the EGM.

Notice of EGM: The notice of the EGM must be sent to the following individuals at least 21 days before the scheduled meeting:

Directors
Shareholders
Auditors

The notice must include all relevant details of the meeting, including the agenda and voting procedure.

Conducting the Extraordinary General Meeting

After the meeting, the proposal to increase the share capital is presented. The voting process is carried out according to the established procedure to make a decision on the matter. Once approval is obtained and the resolution is passed, the explanatory report is attached, and the share capital increase is implemented.

Filing with the Registrar of Companies

Within 30 days of the resolution being passed, the company must submit eForm SH-7 and eForm MGT-14 (if applicable) to the Registrar of Companies (RoC), along with the necessary documents and prescribed fees.

Form MGT-14: This form must be filed with the RoC within 30 days of the resolution to increase share capital being passed.
Form SH-7: This form must also be filed with the RoC within 30 days of the resolution. It is used to inform the Registrar about the increase in the company’s authorized capital.

It is essential to file these forms within the specified timeframe to avoid penalties or legal consequences.

Frequently Asked Questions

Change in Share Capital means modification in the number of shares
If a company wishes to expand its share capital, it can expand it by providing the Right Issue of shares. The right Issue can be provided to current promoters or investors under a plan of employers' investment opportunity, after passing a special resolution by the organization.
Increase or change in Share Capital is a critical change to an organization's structure. Capital restyling or redesigning includes reducing or increasing share capital. This might be completed by combining shares, or by decreasing the par value of shares.
A company can raise capital investment from the primary market through various methods. Some of them induce public issues, private placement, offer for sale, right Issue, and tender process.
If authorized by its articles or AOA, a company may utilise its share premium account or capital redemption reserve to fund a business issue of wholly or partly paid-up bonus shares in ratio to their existing shareholdings.