Procedure To Increase & Decrease Share Capital Of Company

increase & decrease share capital

Increase The Share Capital

The members of the company anytime during the tenure of the company may increase or decrease the capital of the company. The company can increase its paid-up capital by issuing shares either to an existing shareholder or to any other person whether it is a public limited company or it is a private limited company. But there are some restrictions on the private limited company to issue shares i.e. it cannot issue share to general public whereas public limited can invite the general public to subscribe their shares, the private limited cannot issue shares to more than 200 people during its tenure.

Check – Cost To Increase Capital Of Company

Procedure To Increase Paid-Up Share Capital

  1. Call and convene the board meeting of the company and decide the way to issue new shares either to the existing shareholder or other than existing shareholder and pass the board resolution for the same.
  2. Issue notice to the members of the company as per Section 101 of the Companies Act, 2013 for calling a general meeting and to approve the same by passing members’ resolution.
  3. Submit the relevant form to the MCA as per required.
  4. Issue and allot shares to the shareholders of the company within 60 days of depositing the application amount.
  5. After allotment of shares issued, the company shall issue share certificates to the shareholders of the company respective of their shares within two months of allotment of shares.

Note: Paid-up capital shall not be more than authorized capital of the company mentioned in the memorandum of the company.

The company cannot issue share more than its authorized capital but if the company wants to raise capital more than its authorized capital then the company needs to alter the capital clause of the memorandum by increasing its limit.

Procedure To Increase Authorized Capital Of Company

  1. The Article of Association of the company must provide the power to increase the authorized capital of the company if not then alter the article of the company by passing a special resolution in general meeting of the company.
  2. Convene the board meeting of the directors and pass the board resolution for calling a general meeting and authorizing either director or any other person to issue notice and to submit relevant documents to the Registrar.
  3. Issue notice to members of the company as per Section 101 of the Companies Act, 2013 to call a general meeting and pass “Special Resolution” for increasing authorized capital.
  4. File MGT-14 within 30 days from the date of passing Special Resolution.
  5. Submit form SH-7 along with an altered copy of the memorandum and a copy of the special resolution and explanatory notes to the Registrar in whose jurisdiction the registered office situated along with relevant fees as prescribed.

Decrease / Reduction Of Share Capital

Reduction of share capital means decreasing the number of the share capital of the company to reduce the excess capital of the company, for increasing the value of shareholder, for balancing the capital structure and the profit of the company. There are many ways to reduce the share capital of the company apart from Redemption of Preference Share Capital and Buy Back. Reduction of share capital is governed under Section 66 of the Companies Act, 2013.  The Company can reduce its shares only with the approval of NCLT (National Company Law Tribunal).

Procedure To Reduce Share Capital

  1. The company cannot reduce its share capital without the approval of Tribunal (NCLT)
  2. The Tribunal shall give notice of every application made to it under sub-section (1) to the Central Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the creditors of the company and shall take into consideration the representations, if any within a period of three months from the date of receipt of the notice.
  3. If no objection received by the Tribunal within a specified period from any above-mentioned person then the Tribunal will presume that there is no objection to the reduction.
  4. The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital on such terms and conditions as it deems fit
  5. The Tribunal will sanction the application only if it is satisfied that the proposed company is followed the proper accounting treatment with accounting standards and also filed a certificate obtained by the company’s auditor for the same.
  6. The order of confirmation of the reduction of share capital by the Tribunal shall be published by the company in such manner as the Tribunal may direct.
  7.  The company shall deliver a certified copy of the order of the Tribunal and of a minute approved by the Tribunal showing—
  8. the amount of share capital;
  9. the number of shares into which it is to be divided;
  10. the amount of each share; and
  11. the amount, if any, at the date of registration deemed to be paid-up on each share, to the Registrar within thirty days of the receipt of the copy of the order, who shall register the same and issue a certificate to that effect.

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