Change in Share Capital
Comprehensive guidance on altering a company's share capital under the Companies Act, 2013, covering definitions, types of changes, required documents, procedures, timelines, and FAQs.
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Overview of Change in Share Capital
Deciding the amount of capital to invest is one of the most crucial steps during a company’s incorporation. As the business grows and seeks to scale its operations—whether in size, scope, or structure—it may require additional funding, leading to the need for increasing or altering the company’s share capital. A company can only issue shares up to the limit of its authorized share capital, defined under Section 2(8) of the Companies Act, 2013 in the Capital Clause of the Memorandum of Association (MOA). If a company needs to raise more funds than currently permitted, it must follow prescribed procedures to increase its authorized share capital before issuing shares beyond the existing limit.
Meaning of Share Capital
Share capital refers to the total capital raised by a company through the issuance of shares, representing the portion of equity funded by shareholders in exchange for ownership. It is divided into a fixed number of shares with predetermined face value. When a company decides to raise additional funds through share issuance, it must first verify its current authorized share capital in the MOA. A company cannot issue shares beyond this limit unless it officially increases the authorized share capital. If permitted by the Articles of Association (AOA), it may alter share capital by filing necessary forms and obtaining ROC approval.
Meaning of Authorized Capital and Nominal Capital
Authorized (nominal) capital is the maximum amount of share capital a company is permitted to issue, as stated in its MOA under Section 2(8) of the Companies Act, 2013. Changing share capital is governed by Sections 13, 61, and 64 of the Companies Act, 2013. To raise additional funds beyond the current authorized limit, the company must amend its MOA and follow statutory procedures, including passing resolutions and filing with the ROC.
Key Characteristics of Change in Share Capital
● Ownership Rights & Liabilities: Share capital represents a shareholder’s stake, entitling rights such as voting, dividends, and claims on assets during liquidation. ● Movable Property: Under the Sale of Goods Act, 1930, shares are movable property (excluded from 'goods'), transferable unless restricted by AOA. ● Identification by Share Numbers: Shares have unique numbers; in dematerialized form, ownership is recorded electronically. ● Transferability: Shares are freely transferable per AOA rules, allowing transfer of ownership among investors.
Benefits of Altering Share Capital
Altering share capital provides strategic advantages: ● Access to Additional Funding: Increases ability to raise capital for expansion or new projects. ● Flexibility in Capital Structure: Enables consolidation, subdivision, or conversion to optimize shareholding patterns and liquidity. ● Improved Liquidity: Sub-division or consolidation can make shares more accessible or align with market expectations. ● Financial Restructuring: Reduction or cancellation can adjust capital to realistic asset values and remove unpaid capital. ● Alignment with Business Goals: Tailors share capital structure to evolving business needs, investor preferences, or regulatory requirements.
1. Documents Required for Change in Share Capital
When planning alterations such as increase, consolidation, sub-division, conversion, or reduction of share capital, the company must submit:
● Notice of Extraordinary General Meeting (EGM) with explanatory statement
● Certified copy of the resolution passed at the shareholders’ meeting
● Updated Memorandum of Association reflecting proposed change
● Updated Articles of Association aligned with change
● Board resolution authorizing alteration of MOA/AOA
● Shareholders’ resolution approving change in share capital
● Audited financial statements or balance sheets for the last three financial years
● Resolution approving consolidation/sub-division with detailed justification
● Evidence of new capital structure and classification post-change
● Affidavit verifying contents of petition/application
● Bank draft or challan confirming payment of prescribed statutory fee
● Executed Vakalatnama or Memorandum of Appearance, if applicable
● Two additional copies of the application filed
● Any other supporting documents as required by ROC or NCLT.
Procedure for Change in Share Capital
Step-by-Step Process:
1. Issue Notice for Board Meeting: Issue notice at least seven days in advance, stating agenda to alter share capital.
2. Convene Board Meeting: Discuss and approve proposed change via Board Resolution, subject to shareholder consent.
3. Schedule Shareholders’ Meeting: Fix date, time, and venue for EGM or AGM, as applicable.
4. Send Notice to Shareholders: Send formal notice at least 21 clear days before meeting, including explanatory statement.
5. Hold Shareholders’ Meeting: Conduct EGM/AGM on scheduled date; shareholders pass ordinary or special resolution approving change.
6. File with ROC: File necessary forms (e.g., Form SH-7 for ordinary resolution changes or Form MGT-14 for special resolutions) within 30 days of passing resolution, along with updated MOA/AOA and prescribed fees.
Penalty for Delay: Failure to notify ROC within 30 days may attract penalty up to ₹10,000 per day and maximum fine up to ₹5,00,000 for company or responsible officers.
Fee Structure for Change in Share Capital
ROC filing fees vary based on the company’s authorized capital and nature of alteration. Fees must be paid via bank draft or challan as per MCA schedule at time of filing forms.
Timeline for Change in Share Capital
Typical timeline from board approval to ROC filing.
Board Meeting and Resolutions
1-2 weeks
Issue notice, convene board meeting, and pass board resolution approving change.
Shareholders’ Meeting
3-4 weeks
Send 21-day notice, hold EGM/AGM, pass shareholders’ resolution.
ROC Filing
Within 30 days of resolution
Prepare updated MOA/AOA, file Form SH-7 and/or MGT-14 with prescribed fees.
Why Choose DoStartup for Change in Share Capital
We provide end-to-end support for altering share capital under the Companies Act, 2013.
Expert guidance on statutory procedures and documentation
Timely filing and compliance to avoid penalties
Tailored advice for optimal capital structure
High success rate in ROC/NCLT applications