Share capital refers to the funds that a company raises through the issuance of shares to its shareholders. Share capital is an essential component of a company’s financial structure as it represents the ownership of the business. As a company grows and evolves, it may need to alter its share capital to suit its changing requirements. In this blog, we will explore the concept of share capital alteration, its reasons, and the legal procedures involved.
What is Share Capital Alteration?
Share capital alteration refers to the process of changing the authorized or issued share capital of a company. This can be done by increasing or decreasing the number of shares or altering the value of the shares. Share capital alteration can take place for various reasons, such as raising additional funds for expansion, reducing the capital to adjust to changing business needs, or consolidating shares to simplify the company’s structure.
Reasons for Alteration of Share Capital
- Raising Additional Funds: Companies often alter their share capital to raise additional funds for expansion, investment, or other business activities. This can be done by increasing the authorized share capital, issuing new shares, or selling existing shares.
- Consolidating Shares: Share capital alteration can also involve consolidating existing shares to simplify the company’s structure. For example, a company may merge several classes of shares into one class to streamline its capital structure.
- Reducing Share Capital: Sometimes companies may need to reduce their share capital to adjust to changing business needs or to reduce their debt-to-equity ratio. This can be done by reducing the authorized share capital, buying back shares, or canceling shares.
- Simplifying Share Structure: Altering share capital can also involve simplifying the share structure of a company. This can be done by canceling shares that are not needed, consolidating multiple classes of shares, or converting shares from one class to another.
Legal Procedures for Alteration of Share Capital
The alteration of share capital is a significant corporate action that requires the approval of shareholders and compliance with the applicable laws and regulations. The legal procedures for altering share capital are as follows:
- Approval of Shareholders: The alteration of share capital requires the approval of shareholders. The company must convene a general meeting of shareholders and pass a special resolution with the requisite majority in favor of the alteration.
- Filing with Regulatory Authorities: The company must file the resolution for the alteration of share capital with the Registrar of Companies within 30 days of passing the special resolution.
- Publication of Notice: The company must publish a notice of the alteration of share capital in the official gazette and in at least one newspaper circulating in the district where the registered office of the company is situated.
- Payment of Fees: The company must pay the requisite fees for the alteration of share capital to the Registrar of Companies.
In conclusion
The alteration of share capital is a significant corporate action that can have a profound impact on the financial structure of a company. It is important to understand the reasons for the alteration of share capital and the legal procedures involved. Companies must follow the applicable laws and regulations and obtain the necessary approvals from shareholders to ensure that the alteration of share capital is legally valid.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q: What is the alteration of share capital?
A: Share capital alteration refers to the process of changing the authorized or issued share capital of a company. This can be done by increasing or decreasing the number of shares or altering the value of the shares.
Q: Why would a company want to alter its share capital?
A: Companies may alter their share capital for various reasons, such as raising additional funds for expansion, reducing the capital to adjust to changing business needs, consolidating shares to simplify the company’s structure, or simplifying the share structure of a company.
Q: What is a special resolution?
A: A special resolution is a resolution passed at a general meeting of a company that requires a majority of at least 75% of the votes cast by the shareholders who are entitled to vote.
Q: Who needs to approve the alteration of share capital?
A: The alteration of share capital requires the approval of shareholders. The company must convene a general meeting of shareholders and pass a special resolution with the requisite majority in favor of the alteration.
Q: What are the legal procedures involved in altering share capital?
A: The legal procedures for altering share capital include obtaining the approval of shareholders, filing the resolution with the Registrar of Companies, publishing a notice of the alteration in the official gazette and at least one newspaper circulating in the district where the registered office of the company is situated, and paying the requisite fees.
Q: Can a company reduce its share capital?
A: Yes, a company can reduce its share capital by reducing the authorized share capital, buying back shares, or canceling shares.
Q: Can a company increase its share capital?
A: Yes, a company can increase its share capital by increasing the authorized share capital, issuing new shares, or selling existing shares.
Q: How long does a company have to file the resolution for the alteration of share capital?
A: The company must file the resolution for the alteration of share capital with the Registrar of Companies within 30 days of passing the special resolution.
