Reduction under item 3 affects the rights of different classes of shareholders as well as the interest of the members of the public who may be induced to take shares in the company. Only the details of authorised capital are to be incorporated in the next Balance Sheet. The company had issues on right basis to its shareholders 18lakhs zero convertible Debentures of Rs. The Certificate of Registrar to this effect is a conclusive evidence that all the requirements of the Act regarding the reduction of share capital have been complied with and that the share capital is such as is stated in the minutes. We will discuss reduction of share capital in next post.
In other words, it is cancellation of unissued share capital not being taken or agreed to be taken up by any person. The reorganisation of share capital of a company shall be binding if the scheme is approved by a majority in number representing three fourths in value of the creditors or members, as the case may be present and voting in person or by proxy, where proxies are allowed, and the scheme is sanctioned by court. Reason for Reduction in Share Capital of a Company There are many reasons for the reduction of share capital of a company some are as follows. Procedure for Reduction of Share Capital:- After passing the special resolution for the reduction of capital, the company has to apply to the tribunal by way of petition to confirm the special resolution under section 66 of the Companies Act. The aforesaid comprise is an agreement between a company and its members and outside liabilities when the company faces financial problems. There are varied types of methods under which you can register your company.
Also, sometimes companies may have more capital resources and reserves than they can profitably employ, giving rise to the need to readjust the relation between capital and assets by reduction of capital. Checkout Alteration of Share Capital meaning, and Procedure for Alternation of Share Capital under the Companies Act 2013 along with Case Laws. Such a process is called as Internal Reconstruction which is carried out without liquidating the Company. Such arrangement involves sacrifice from shareholders or creditors or by all. These two new small provisions are the breaks on the discretionary power of the tribunal given under Companies Act, 1956.
The procedural part mention in the statute for alteration of share capital also give security to its shareholder. The first clause in the Memorandum of Association of the company states the name by which a company is known. No consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal. The court should settle the list of creditors entitled to object and issue public notices fixing a day or days within which creditors who are entered on such list are to claim to be so entered or to be excluded from the right of objecting to the reduction. Corporatization is the need of the hour.
Shares to be issued at a discount shall be of a class already issued. A share in the share capital of a company and includes stock which is defined under Section 2 84. No such resolution shall be sanctioned by the Company Law Board if the maximum rate of discount specified in the resolution exceeds ten per cent, unless Board is of the opinion that a higher percentage of discount may be allowed in the special circumstances of the case. Bank also usually prefer to give a loan to the company depending upon the authorized capital. The Reserve Capital cannot be charged as security for loans by the creditors. Procedure of reduction : i The articles of association of the company must authorize the company to reduce its share capital.
The board meeting has to be conducted for enabling the board to call for the extraordinary general meeting, it is mandatorily required to get approval from the shareholders for increasing the authorized share capital. Thus, the right to alter share capital must be given in the article of association of the company. The resolution specifies the maximum rate of discount at which shares are to be issued. The procedure is however marked with clear line restrictions and checks to prevent fraud and protect the interests of creditors of the Company. Alterations of Share Capital Method 3. Variation of the Rights of Shareholders: The share capital is divided into different classes of shares which may have different rights attached to them, generally provided from the Articles of Association of the company.
Provisions Relating to Alteration The capital clause can be altered if the Article of Association contains the provision for such alteration otherwise, the first basic step is to alter Article of Association by passing a special resolution. Reduction of the share capital : To provide protection to interests of the investors especially creditors of companies, reduction of share capital is permissible with strict stipulation of the law. However, a company may no longer convert its shares into stock. The power to issue shares at a premium need not be given in the articles of the company. If any default is made in complying with this requirement the company shall be liable to pay a penalty of ten thousand rupees and every officer of the company who is in default shall be liable to pay a penalty of five thousand rupees, for each default. Reduction in Share Capital Not Allowed Reduction in share capital is not allowed in the case where there are arrears in the repayment of interest and thereon. Every member, legal representative or the assignee, the auditor s and every director of the company has to be given a notice of 21 days prior to the actual date of the meeting.
Reconversion of stock into shares Stock created before 1 October 2009 by a limited company may be reconverted into fully paid-up shares of any nominal value. Such alterations must be notified and a copy of the resolution filed with the Registrar within 30 days of the date of the passing of the resolution. The application shall be made to the court within 21 days after passing of the resolution or consent given as the case may be. This right is known as right of pre-emption, and the shares which are meant for existing shareholders are known as Right Shares. The Balance Sheet of Y Co. In case the article does not authorize the company to do so, an article of the company has to be altered to authorize the company for the same. Variation of the Rights of Shareholders 5.