Share capital is a significant component of any company as it represents the amount of money that has been invested by the shareholders. In India, companies can alter their share capital, which means changing the amount of capital that has been authorized, issued or subscribed by the company. This alteration can be done for various reasons, such as fundraising, mergers and acquisitions, and to meet the changing business needs of the company. In this article, we will discuss the various aspects of share capital alteration under Indian company law.

Meaning of Share Capital Alteration

As mentioned earlier, share capital alteration means changing the authorized, issued or subscribed share capital of a company. The term “authorized share capital” refers to the maximum amount of capital that a company is authorized to issue to its shareholders. This amount is mentioned in the Memorandum of Association (MOA) of the company. The “issued share capital” is the part of the authorized share capital that has been issued to the shareholders. The “subscribed share capital” is the part of the issued share capital that has been subscribed by the shareholders.

Share capital alteration can be of two types – increase and reduction. An increase in share capital means increasing the authorized share capital of the company. A reduction in share capital means reducing the authorized, issued or subscribed share capital of the company.

Procedure for Alteration of Share Capital

The procedure for share capital alteration under Indian company law is governed by Section 61 and Section 64 of the Companies Act, 2013. The procedure is as follows:

1. Check the Articles of Association (AOA): Before altering the share capital, the company needs to check its AOA to ensure that it has the power to do so. If the AOA does not provide for the power to alter share capital, then the AOA needs to be amended by passing a special resolution.
2. Convene Board Meeting: The next step is to convene a board meeting to approve the proposal for alteration of share capital. The board of directors needs to pass a resolution approving the proposal and authorizing the company secretary or any other authorized person to issue the notice for convening a general meeting of the shareholders.
3. Convene General Meeting: The company needs to issue a notice for the general meeting to be held to approve the proposal for alteration of share capital. The notice needs to be sent to all shareholders, directors and auditors of the company. The notice needs to be given at least 21 days before the meeting.
4. Passing of Special Resolution: At the general meeting, a special resolution needs to be passed to approve the proposal for alteration of share capital. The special resolution needs to be passed by a three-fourth majority of the shareholders present and voting.
5. Filing of Forms with Registrar of Companies: After the special resolution is passed, the company needs to file various forms with the Registrar of Companies (ROC). The forms that need to be filed are:

• Form MGT-14 – for filing the special resolution with the ROC.
• Form SH-7 – for intimating the ROC about the alteration of share capital.
• Form PAS-3 – for filing the return of allotment of shares in case of an increase in share capital.

6. Approval from the ROC: The ROC will examine the forms filed by the company and if everything is in order, the ROC will approve the alteration of share capital. If the ROC is not satisfied with the forms filed, then the company needs to rectify the deficiencies and file the forms again.
7. Intimation to Stock Exchanges: If the company is listed on a stock exchange, then it needs to intimate the stock exchange about the alteration of share capital within 15 days of receiving the approval from the ROC.

Alteration of Share Capital by Private Companies

The procedure for share capital alteration by private companies is similar to that of public companies. However, there are a few differences in the requirements for private companies. Private companies need to ensure that the AOA provides for the power to alter the share capital. If the AOA does not provide for the power to alter share capital, then the AOA needs to be amended by passing a special resolution.

Moreover, the requirement for passing a special resolution in a general meeting by a three-fourth majority is not applicable to private companies. Private companies can alter their share capital by passing an ordinary resolution in a general meeting by a simple majority of the shareholders present and voting. This is provided for under Section 48 of the Companies Act, 2013.

Reduction of Share Capital

Reduction of share capital means reducing the authorized, issued or subscribed share capital of the company. This can be done for various reasons such as to adjust the capital structure of the company, to write off losses, to return capital to shareholders, and so on. The procedure for reducing share capital is governed by Section 66 of the Companies Act, 2013. The procedure is as follows:

1. Convene Board Meeting: The first step is to convene a board meeting to approve the proposal for reduction of share capital. The board of directors needs to pass a resolution approving the proposal and authorizing the company secretary or any other authorized person to issue the notice for convening a general meeting of the shareholders.
2. Convene General Meeting: The company needs to issue a notice for the general meeting to be held to approve the proposal for reduction of share capital. The notice needs to be sent to all shareholders, directors and auditors of the company. The notice needs to be given at least 21 days before the meeting.
3. Pass Special Resolution: At the general meeting, a special resolution needs to be passed to approve the proposal for reduction of share capital. The special resolution needs to be passed by a three-fourth majority of the shareholders present and voting.
4. Approval from the Tribunal: After the special resolution is passed, the company needs to file an application with the National Company Law Tribunal (NCLT) for approval of the reduction of share capital. The NCLT will examine the application and if everything is in order, the NCLT will approve the reduction of share capital. If the NCLT is not satisfied with the application, then the company needs to rectify the deficiencies and file the application again.
5. Filing of Forms with Registrar of Companies: After the approval of the reduction of share capital by the NCLT, the company needs to file various forms with the ROC. The forms that need to be filed are:

• Form MGT-14 – for filing the special resolution with the ROC.
• Form SH-15 – for intimating the ROC about the reduction of share capital.
• Form PAS-3 – for filing the return of allotment of shares in case of a reduction in share capital.

6. Intimation to Stock Exchanges: If the company is listed on a stock exchange, then it needs to intimate the stock exchange about the reduction of share capital within 15 days of receiving the approval from the NCLT.

Conclusion

Alteration of share capital is a significant aspect of company law in India. It provides flexibility to companies to adjust their capital structure according to their business needs. However, it is important for companies to follow the procedures laid down under the Companies Act, 2013, and obtain the necessary approvals from the appropriate authorities. Non-compliance with the procedures can result in legal consequences and penalties. Therefore, companies need to ensure that they comply with the legal requirements when altering their share capital.