Can a company increase or reduce its authorised share capital?

Answer 1

How to Reduce the Share Capital of a Company

The Share Capital of a company can be reduced by adopting the below mentioned procedure

Conduct the Board Meeting:

Power to reduce share capital shall have been authorized by the articles of association. In the absence of such provision, the articles shall first be altered. A Board Meeting shall be convened to approve the scheme of reduction of share capital and to approve the draft notice of the general meeting.

Hold the General Meeting:

In the case of a listed company:

• Inform the stock exchange by letter or telegram regarding the reduction of share capital as decided by the Board; [Clause 22(c) of listing agreement].
• Send 3 copies of the notice of the general meeting to stock exchange. [Clause 31(c) of listing agreement].
• Notice of the general meeting shall be issued to members and other eligible person at least 21 clear days' before the date of general meeting.
• The general meeting shall be held to pass a special resolution for reduction of share capital.

In case of a listed company, send a copy of the proceedings of the general meeting to the stock exchange. [Clause 31(d) of listing agreement].

Form No.23 of Companies General Rules and Forms, along with a copy of the special resolution, shall be filed with Registrar of Companies within 30 days from the date of resolution together with the filing fee.

Court:

A petition shall be filed to the court, confirming the reduction of share capital in Form No.18 of the Companies Court Rules together with the following documents:

a) Form No.19 of the Companies Court Rules;

b) Affidavit in Form No.3 of the Companies Court Rules;

c) Certified true copy of memorandum and articles;

d) Certified true copy of the notice calling the meeting;

e) Certified true copy of the special resolution and minutes regarding the reduction of share capital;

f) Latest audited balance sheet and profit and loss account;

g) Requisite Court fee as prescribed by the rules of the concerned High Court.

The petition shall be advertised in Form No.5 of the Companies Court Rules at least 14 days before the date of hearing fixed by the Court in the official Gazette of the State and in one leading English and one vernacular daily newspapers circulating in the State in which the registered office of the company is situated.

In case of a listed company, send 3 copies of the advertisement to the stock exchange. [Clause 31(e) of listing agreement].

If the proposed reduction involves either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital, the procedure laid down in rules 48 to 59 of Companies (Court) Rules, 1959 shall also be complied with by filing Form Nos. 21 to 29 of the said rules as under;

a) File a list of creditors in Form No.21 of the Companies Court Rules duly verified by an affidavit in Form No.22 of the said Rules;

b) Issue notice in Form No.23 of the Companies Court Rules to each of the creditors as per the above list through prepaid registered post;

c) Advertise the notice and the list of creditors in Form No.24 of the Companies Court Rules, within 7 days from the date of filing the list, in the official gazette of the state in which the registered office of the company is situated;

In case of a listed company, send 3 copies of the above advertisement to the Stock Exchange; [Clause 31(e) of listing agreement].

d) An affidavit proving despatch and publication of the notices mentioned in (b) and (c) above shall be filed with the court in Form No.25 of the Companies Court Rules;

e) A Statement, signed by the company's advocate and verified by the company stating the result of the notices mentioned in (b) and (c) above, accompanied by an affidavit in Form No.26 of the Companies Court Rules shall be filed within the time fixed by the Court;

f) Serve notice in Form No.27 of the Companies Court Rules in respect of creditors disputed by the company at least 4 clear days before the date of hearing fixed by the Court;

g) File the certificate of company's advocate regarding the result of the settlement of list of creditors;

h) Advertise the notice regarding the date of hearing fixed for the petition, in Form No.29 of the Companies Court Rules, in such newspapers and within such time as may be directed by the Court.

In case of a listed company, send 3 copies of the above advertisement to the stock exchange. [Clause 31(e) of listing agreement].

On passing of the order by the High Court, reason for the reduction of capital shall be published, if so directed by the High Court. [Section 102].

Notice of the Court's order shall be delivered to the Registrar of Companies in Form No.21 of Companies General Rules and Forms, within 30 days of the receipt of the Court's order, after paying the requisite fee.

A certified copy of the High Court's order and minutes shall be delivered to the Registrar of Companies. The Registrar shall register the copy of the order and minutes and certify the same under his own hand, whereupon the reduction of capital becomes effective. [Section 103].

The notice of registration shall be published in the manner directed by the High Court, in Form No.32 of the Companies Court Rules. [Section 103(3)].

In case of a listed company send 3 copies of the above advertisement to the stock exchange. [Clause 31(e) of listing agreement].

STEPS TO BE TAKEN AFTER REDUCING THE CAPITAL:

Once the reduction of capital has become effective, following steps shall be taken:

a) Necessary alteration shall be made in all copies of memorandum and articles;

b) Excess share capital shall be paid off;

c) Share certificates shall be altered in order to reflect the reduction in liability in respect of uncalled or unpaid capital;

d) Excess paid-up capital, shall be cancelled;

e) The words 'and reduce' shall be added to the company's name, if so directed by the High Court, for the period specified in the order. [Section 102].

In case of a listed company, send 6 copies including a certified copy of the alterations to the memorandum and articles to the stock exchange. [Clause 33 of listing agreement