ALTERATION OF SHARE

CAPITAL
 To make the students aware about “what is alteration of share capital
 To provide them knowledge about the different provisions
 To enable the students to understand about the provisions of
companies act, 2013
 To imbibe conceptual fundamentals and technical analysis in
students
 To make them practitioner of corporate affairs with the ability to
raise , mobilize and deploy their own and organizations funds
optimally
 PowerPoint Presentations
 Current Affairs Coverage
 Information About Latest Employment
Opportunities
 Case Studies
Pre-Requisites
For the conceptual grasp of alteration of share
capital, the students must possess the following
qualities or pre-requisites :-
1. What are shares?

2. What are the types of share capital

After reading the course material , the students should be
able to :
 Explain the ‘concept of alteration of share capital’

 Tell about the types of alteration of share capital

 Analyze the different motives behind alteration

 STEPS, DOCUMENTS AND INFORMATION REQUIRED
FOR INCORPORATION OF A COMPANY UNDER THE
COMPANIES ACT, 2013

1. Reservation of Company Name:

First, the applicants are required to apply for a name in Form No. INC-1. The fee for seeking
a name approval is Rs.1000/- as prescribed and 60 days are allowed for incorporating the
company. The name should not be undesirable i.e.; identical, resembling, restricted or
prohibited.
2. Provision for Entrenchment:
As per section 5(3) of The Companies Act, 2013, articles may contain provisions for
entrenchment to the effect that specific provisions of the articles may be altered only if
conditions or procedures more restrictive than as applicable in case of special resolution, are
met or complied. Where the articles contain the provisions for entrenchment, the company
shall give notice to the Registrar of such provisions in Form No. INC-2 for one person
company (OPC) or Form No. INC-7, as the case may be, along with the prescribed fee at the
time of incorporation of the company or in case of existing companies, the same shall be filed
in Form No. MGT-14 within thirty days from the date of entrenchment of the articles, as the
case may be, along with the fee as prescribed.
3. Drafting of Memorandum and Articles of Association:
The memorandum (MoA) should be drafted keeping in mind the provisions of section 4 of The
Companies Act, 2013 and objects should not be contrary to those as per Form No. INC-1. The
Model MoA as prescribed in Table A to E of Schedule I of The Companies Act, 2013 can be
adopted as applicable.
Alteration of Share Capital
 Alteration of share capital – S 94 (1)
 Increase in the share capital
 Consolidation of share capital
 Conversion of shares into stocks and stocks into shares
 Splitting of shares – subdivide into small amounts
 Cancellation of shares which are not issued
 Reduction of shares
 Alteration of Share Capital
• Procedure for increase of share capital
– Board Resolution and approval
– Notice of general meeting
– Ordinary/special resolution
– Intimation to the stock exchange
• Three copies of notices
• Six copies of resolution
– Filing of special resolution
• E-23 Form to the Registrar within 30 days
– Filing of e-form No. 5
• Within 30 days of the general meeting
• Duly stamped
– Noting the memorandum and articles
Alteration of Share Capital
• Notice to Registrar of consolidation of share capital,
conversion of shares in stocks – 95
• Notice of increase of share capital -97
– File notice of increase with the registrar within 30 days after
passing the resolution
– Details of class of shares
– Default is punishable with a fine extending to five hundred
rupees per day of default
• Merger of authorized capital during amalgamation
– Tribunals approved scheme
– Stating the share capital in its memorandum
– Merger resulting in increasing the share capital
• File notice of increase with the Registrar
 Alteration of Share Capital
• Reduction of Share Capital
– Reduction of uncalled capital
– Reduction of capital on suffering loss
• Conditions for reduction of share capital – 100
– Company’s articles should permit the reduction
– Shareholders approval by a special resolution
– Confirmation by the Tribunal for reduction
• Reduction of shares by
– Extinguish or reduce the liability on any of its shares not paid
– Either with or without extinguishing or reducing liability - pay
off paid up share capital which is in excess of requirement
– Share capital lost
Alteration of Share Capital
• Types of companies eligible for reduction
– Company limited by shares
– Company limited by guarantee and having a share
capital
• Reduction of share capital by
– Buy back of shares – 77A
– Apply the share premium account for a purpose other
than purposes authorized
– For capital redemption account for a purpose other
than for the issue of bonus shares
Reduction of share capital
• Motives of reduction of capital
– Over capitalization
– Writing off of losses and assets
– Acquisition of shares which are not in optimum lots
– Separation of a shareholder or a group of shareholders
– Distribution of accumulated profits by payment to
shareholders
– Family arrangement
– Reorganization of capital or quasi capital as part of scheme
of compromise or arrangement or amalgamation
– Revival of a sick company or company in windingup
Reduction of Capital
• Reduction of securities amount
– Utilization of share premium
• Principles governing reduction of capital
– Company has the power to reduce its capital
– Confirmation by the court
– Protection to the minority
– Reduction in part or whole
– Registration of order and minute of reduction of share capital
– Liability of members in respect of reduced shares – 104
• Penalty for concealing name of creditors – 108
– One year imprisonment or fine or both
Reduction of Capital
• Procedure
– Board meeting and approval
– General meeting
– Intimation to stock exchange
– Special resolution
– Filing of special resolution
– Application to Tribunal
– Confirmation from Tribunal
– Creditors consent to the reduction
Buy Back of Securities
 Law applicable
 S 77 A of Company Law
 SEBI (Buy-Back of Securities ) Regulations 1998
 Private Limited Company and Unlisted Public Limited Company
( Buy-Back of Securities) Rules 1999
 Factors for Buy-back of shares
 Increase the underlying value of shares
 Enhancing the earning per share (EPS)
 Reduce the excess share capital
 Pay off surplus cash not required for the business
 Prevent takeover bid
 Part of compromise agreement
 Rationalize the capital structure
 Benefits of Buy-Back
 Improved return on investment
 Reduced shareholders and better service
 Good management control
 Greater liquidity to the shareholders
 Avoiding unpaid shares and fractional shares
 Buying of shares from discontented shareholders
 Limitations
 Lock-in-period
 Non-transferability conditions in the agreements
 Regulations of RBI, other regulators
 Listing requirements and conditions in agreement
 Reduction of free reserves
 Debt equity ratios, other financial ratios
 Interest rates from financial institutions
Buy Back of Securities
 Company Law provisions – 77 B
 Prohibition from buying their own shares
 Objective is put checks and balances in the process –
77 A(1)
 Permitted by the Tribunal and other laws
 Company ltd by shares are permitted to buy back
 Company buy its own shares from
 Its free reserves
 Securities premium account
 Proceeds of any other shares or securities
Buy Back of Securities
 Conditions
 Authority in articles –’ unless authorized by articles’
 Limit upto which the securities can be bought
 Maximum limit 25% of its total paid up capital and free reserves
according to last audited balance sheet
 Paid capital include equity and preferential shares
 Maintenance of post buy-back debt-equity ratio
 Not more twice the capital and free reserves
 Buy back of shares from -5
 existing security holders
 Open market
 Odd lots
 Securities issued to employees - stock options or sweat equity
 Only fully paid shares are to be purchased
Buy-Back of Securities
 Transfer to capital redemption reserve account – 77 AA
 Sanction by special resolution of General Meeting
 No sanction is required if the buy back is less than 10%
 Such buy back is authorized by the Board
 Special resolution and explanatory statement
 Disclosure about the scheme of buyback in the general meeting
 Filing of a copy of resolution with SE and RoC
 Methods of buy back
 From existing share holders
 Open market – book building process or stock exchange
 Odd lots
 No negotiated deals
Buy- Back of Securities
 Declaration of solvency
 Board of directors resolution about solvency
 Filing with RoC and SEBI – Form 4 A
 Filing of affidavit
 No filing with SEBI – for unlisted company shares
 Time Limit for completion of buy back
 Twelve months from date of resolution
 Restriction on issue of new securities after buyback – upto
six months -8
 No further issue
 No private placement or right issue
 Bonus shares and conversion of securities are permitted
 Buy-back of Securities
 Register of shares bought from the scheme
 Return of shares bought -10
 With RoC, SEBI
 e- Form 4 C
 No filing for unlisted company
 Destroying of the physical securities within seven days of last date
of conclusion of buy back -7
 Penalty for default of compliance – two years imprisonment or fine
up to fifty thousand or both
 Prohibition for buy back – 77 B
 Through any subsidiary
 Through any investment company
 No default in payment of deposits or redemptions
 No buy back of shares when the company has not filed the annual
returns, or paid the dividend or file the financial statements with
RoC
 Buy-Back of Securities
 Process – Open market – tender offer
 Conducting the Board Meeting – information to SE – 7 days before
meeting
 Special resolution and other approvals in the GM –
 File Resolution with RoC, SE and SEBI
 Public announcement and offer
 File offer letter and solvency certificate with SEBI with fee and RoC –
immediately – one day
 Dispatch of letters of offer
 Specified date - dates of offer and close
 Opening of escrow account and transfer money to special account
 Finalize the list of the applicants – advertisement in news paper
 Payments to applicants
 Destroy the physical securities
 File report with RoC – 110 days total
 Buy-back of Securities
 Through SE route
 Board meeting date and information to SE
 Board meeting – special resolution and other approval
 Public announcement
 Filing papers with SEBI and RoC and SE
 Commencement of purchases
 Inform the particulars of purchase to SE
 Verify the securities and payments to applicants
 Reporting to SEBI and SE
 Advertisements in national daily
 File report with RoC
 Buy-Back of Securities
 Buyback of securities by unlisted company
 From existing security holders on proportionate basis
 From the employees of the company – Esops or Sweat
equity
 Board Meeting – Special Resolution
 Disclosures and explanatory statements
 Declaration of solvency
 Letter of offer to target and filing with RoC – Rule 6(1)
 Acceptance of offer and related procedures - R 6(2)
 Verification of offer application received – within 21 days
– R 6 (3)
 Payment of consideration within 7 days – R 7(2)
 Compilation of other obligations – R 8
 Buy-Back Securities
 Buy Back should be completed within 12 months –
77A(4)
 Filing of returns with RoC and SEBI – 77 A
 Extinguishment and destroy of physical certificates
–R 10 – within 7 days
 Furnish certificate to RoC duly signed by the Two
directors and Company Secretary – R 10
 Register of Securities bought back