Change in Share Capital
After incorporation of company, if the company feels it necessary to do so, they can alter the change in share capital of company. There is certain procedure to be followed to do this alteration.
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meaning of Change in Share Capital
Types of share capital
Authorized Share Capital:
Also known as Nominal or Registered Share Capital. It is the sum of money stated in the Memorandum of Association as the share capital of the company. It is the maximum amount of capital the company can raise by issuing shares
Issued Capital:
This is the portion of the nominal capital which the company has issued for a subscription. This amount of capital is either less than or equal to the nominal capital, it can never be more.
Subscribed Capital:
This is the part of the issued capital that has been subscribed by the shareholders. It’s not necessary that the whole of the issued capital will receive subscriptions, but at least 90% of issued capital should be subscribed generally.
Called-up Capital:
The company may not always call up the full amount of the nominal value of shares. The amount of the subscribed capital called up from the shareholders is the called up capital, which is less or equal to the subscribed capital.
Paid-up Capital
This is the amount paid for the shares subscribed. If the shareholder does not pay on call, it will fall under “calls of arrears”. When all shareholders pay their full amounts paid up capital and subscribed capital will be equal.
Reserve Capital
The capital reserved by a company, to be used in the event of winding up of the company
advantages/attributes of Change in Share Capital
1) NON INTEREST BEARING FUND:
One of the attractions of raising capital via the sale of shares is that the company does not have repayment requirements for the initial investment or for interest payments. This can make it more appealing than other forms, such as bank loans and bonds, that are debts of the company. Debts require the company to make payments at regular intervals in relation to interest, as well as eventually repaying the initial amount that was borrowed. Any shares sold can require a distribution of profits as a dividend but these can be halted if necessary. Therefore, the business is given more flexibility over its finances.
2) FLEXIBLE:
Raising equity via share sales is also very flexible. The business has full control over how many shares to issue, what to initially charge for them and when it wishes to issue them. It can also issue further shares in the future if it wishes to raise more money. The company can also decide on the type of shares it issues and what rights these give the shareholders, and it can also repurchase issued shares if desired.
3) LOWER RISK:
Another advantage is that there is a much lower risk that the business will become bankrupt. Shareholders cannot force a company into bankruptcy if it fails to make payments (unlike creditors if the company fails to repay interest).
procedure for increasing authorized share capital
- Step 1:
- Check whether the company prima-facie authorized by the Articles of association to increase the share capital if it does not authorize the proceedings are to be completed with the objective of altering them.
- To convene the board meeting for enabling the board to call for extraordinary general meeting (if not passed at Annual General Meeting) to get approval from the shareholders for increasing the authorized share capital.
- Call for an extraordinary general meeting of the shareholders of the company by sending a notice with clear agenda, explanatory statements and the resolutions to be passed to alter the Memorandum of Association and Articles of Association which are to be altered for the purpose of increasing the authorized share capital.
- Pass the resolutions for increasing the authorized share capital of the company and corresponding alterations in Memorandum of association and Articles of Association by special resolution.
- Authorize the board to file necessary forms and resolutions with ROC having jurisdiction.
- Step 4:
- Filing the e- form SH7 with Roc by paying the requisite fee. Whenever a company alters its share capital/number of members independently or increases the share capital by conversion of debentures/loans due to order of Central Government, then a return shall be filed with the registrar within 30 days of such alteration or increase. The return shall also be filed where the company redeems any redeemable preference shares.
Stamp duty can be paid electronically through the MCA portal and the following documents are to be attached;
- Notice of extra ordinary general meeting
- Certified true copy of ordinary resolution
- Altered Memorandum of association
- Altered Articles of association, if any
- Step 6:
- Filing of e-form MGT-14: copy of every resolution or any agreement in respect of any matters specified in sub- section 3 along with the explanatory statement under section 102 has to be annexed to the notice calling the meeting in which the resolution is proposed shall be fixed with registrar within 30 days along with the fees which is specified in Section 403 of the Act.
FAQS
YES, The structure of share capital of company can be changed provided it is authorized by article of association and it shall be intimated to ROC.
YES, Directors can acquire share capital of company.
YES, paid up share capital of company can be increased by following prescribed procedure.
A company can issue shares to public through IPO. Through an IPO, any person can acquire the shares of company by simply having a demat account.
NO, Shares can not be issued in a physical mode. Now, MCA has made it mandatory for every company to make the shares in a demat form and physical issue of shares has been totally vanished.
YES, Share capital is the base of company's value. So it is always advisable to have share capital in a company.
YES, an authorized share capital of company can be increased by following prescribed procedure.
NO, Private limited company can not issue shares to the public. It is prohibited for private limited companies.
YES, It is mandatory to have demat account to acquire any shares, debentures or bonds of a company.
NO, it is not mandatory to declare dividend on shares. It is totally at company's discretion.
