A company can change the structure of its share capital in four ways under Section 61 of the Companies Act, 2013. Each change has its own rules and filings.
The four changes
Increase in authorised share capital: The company increases the maximum amount of capital it is allowed to issue. This is done by altering the capital clause in the Memorandum of Association. It requires a special resolution and Form SH-7 filing.
Consolidation: The company combines several shares into one share. For example, ten shares of ₹10 each become one share of ₹100. This is done by a special resolution and Form SH-7.
Sub-division: The company splits one share into several shares. For example, one share of ₹100 becomes ten shares of ₹10. This is done by a special resolution and Form SH-7.
Conversion: The company converts fully paid-up shares into stock, or stock into fully paid-up shares. This is also done by a special resolution.
The approval and filing
All four changes require a special resolution of the shareholders. The company must file Form MGT-14 with the resolution, and Form SH-7 for the alteration of the share capital. The alteration is effective from the date of the special resolution, subject to the filings.
Increase in authorised capital
An increase in authorised capital only raises the ceiling. It does not issue any shares. The company must still issue shares through a rights issue, a bonus issue, a preferential allotment or a private placement, following the rules for that route.
Sub-division and consolidation
Sub-division and consolidation change the face value of the shares. The company must update the share certificates, the register of members and the demat records. If the shares are in demat form, the company must inform the depository about the change.
The practical points
The company should pass the special resolution, file MGT-14 and SH-7, and update the MOA, the share certificates and the register. The stamp duty on the increase in authorised capital should be paid. The company should also check whether the articles need to be amended.
Call to Action: We advise companies on share capital alterations, SH-7 filings and MOA updates. For a share capital review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.