+91 7305 345 345Change in Share Capital
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Change in Share Capital refers to the modification of a company’s authorised, issued, or paid-up capital as per the provisions of the Companies Act, 2013. This may involve increasing or decreasing share capital, issuing new shares, or consolidating or subdividing existing shares. Companies must follow legal procedures, pass board and shareholder resolutions, and file necessary forms with the ROC.
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Change in the Share Capital of a Company
In the life cycle of a company, capital is more than just money—it is the fuel that powers growth, strategy, and sustainability. Among the various aspects of corporate capital, share capital plays a fundamental role. It represents the amount invested by shareholders in exchange for ownership in the company. However, this figure is not static. Companies may need to change their share capital from time to time due to reasons like expansion, restructuring, compliance with regulatory norms, mergers, acquisitions, or to reward shareholders.
In India, changes to a company’s share capital are governed by the Companies Act, 2013 and several allied rules, such as those under the Companies (Share Capital and Debentures) Rules, 2014. The process must follow due legal procedures, including approvals from the board and shareholders, filings with the Registrar of Companies (RoC), and in some cases, court or tribunal permissions.
What is Share Capital?
Share capital refers to the funds raised by a company through the issuance of shares. The shareholders, in return, receive equity in the company and rights such as voting rights, dividend entitlements, and a claim on the company's assets in the event of liquidation.
Legal Framework for Changing the Share Capital in India
Under the Companies Act, 2013, the primary sections governing changes in share capital are:
- Section 61: Provides for the alteration of share capital
- Section 64: Provides for notifying the Registrar of Companies (RoC) of any change
- Section 66: Provides for the reduction of share capital
- Section 68: Provides for Buy-back of shares
- Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014
Types of Changes in Share Capital
1. Increase in Authorised Share Capital
It means expanding the maximum limit of a company's share capital that is permitted to be issued, as per its Memorandum of Association (MoA). It becomes necessary when a company wants to raise more funds through new share issues, such as via a rights issue, private placement, or an Initial Public Offering (IPO).
2. Reduction of Share Capital
Reduction involves decreasing a company's paid-up or issued capital. Common reasons include writing off accumulated losses, returning surplus capital to shareholders, or extinguishing unissued shares. It is governed by Section 66 of the Companies Act, 2013 and requires approval from the National Company Law Tribunal (NCLT), along with notices to creditors and regulators.
3. Sub-division or Split of Shares
In this case, each existing share is divided into a larger number of shares with proportionally reduced face value (e.g., one ₹10 share split into ten ₹1 shares). This increases the total number of outstanding shares without changing overall capital.
4. Consolidation of Shares
This process combines multiple shares into a single unit with a higher face value (e.g., ten ₹1 shares consolidated into one ₹10 share
5. Conversion of Shares
Companies may convert equity shares into preference shares or vice versa, depending on strategic goals. Such changes usually require both shareholder approval and an update to the Articles of Association (if not already authorised).
6. Buy-back of Shares
It happens when a company repurchases its shares from the open market or existing shareholders. It is permitted under Sections 68 to 70 of the Companies Act, 2013.
7. Bonus Issue / Capitalisation of Reserves
In this case, the company distributes free additional shares to existing shareholders by converting its free reserves, securities premium, or capital redemption reserve. This doesn’t involve new capital inflow but increases the paid-up share capital.
Difference Between Authorised Capital, Issued Capital, Subscribed Capital and Paid-up Capital
|
Type of Capital |
Definition |
Flexibility |
|
Authorised Capital |
The maximum share capital a company is legally permitted to issue, as stated in its Memorandum of Association (MoA). |
It can be increased by altering the MoA through shareholder resolution. |
|
Issued Capital |
Portion of authorised capital that the company actually offers to investors for subscription. |
It can be less than authorised capital, allowing flexibility in capital planning. |
|
Subscribed Capital |
Part of the issued capital that investors have agreed to purchase. |
It can be equal to or less than the issued capital. |
|
Paid-up Capital |
The actual amount received by the company from shareholders against the subscribed shares. |
It can be partly paid in rare cases, but now mostly fully paid. |
Which Companies Can Increase Their Authorised Share Capital?
Any company registered under the Companies Act, 2013, whether private limited, public limited, one-person company (OPC), or Section 8 company (with restrictions), can increase its authorised share capital if:
- Its Articles of Association (AoA) allow such a change.
- The existing authorized capital limit is insufficient for its future share issuance plans.
Documents Required to Increase the Authorised Share Capital
- Certified copy of Board Resolution
- Notice of Extraordinary General Meeting (EGM)
- Copy of Special/Ordinary Resolution passed at EGM
- Altered Memorandum of Association (MoA) (specifically Clause V – Capital Clause)
- Altered Articles of Association (AoA) (if necessary)
- Form SH-7 (filed with RoC)
- Form MGT-14 (if AoA or MoA is altered by special resolution)
- Proof of payment of the requisite stamp duty
- Updated list of shareholders (if required)
- Board meeting minutes and attendance sheet of the EGM
Procedure to Increase Authorized Share Capital
Step 1: Check Articles of Association (AoA)
Check whether the AoA permits increasing the authorised capital. If not, amend it first. If not, the AoA must first be altered by passing a special resolution.
Step 2: Convene a Board Meeting
Pass a resolution to approve the increase in capital and call an Extraordinary General Meeting (EGM). Approve the draft notice for calling an EGM.
Step 3: Issue Notice of EGM
Send notice to shareholders at least 21 clear days before the EGM.
Step 4: Conduct the EGM
Pass an Ordinary Resolution (Section 61) to increase authorised capital and amend the MoA accordingly.
Step 5: File Form SH-7 with RoC
SH-7 is required for the alteration of the capital and the updated MoA. The form must be filed within 30 days of the EGM. Attach the following to the form:
- Certified copy of the Board Resolution
- Certified copy of the Shareholders' Resolution (Ordinary/Special)
- Altered Memorandum of Association (MoA) – showing updated Clause V
- Altered Articles of Association (AoA) – if amended
- Notice of Extraordinary General Meeting (EGM) with explanatory statement
- Copy of the attendance sheet and minutes of the EGM (if available)
- Stamp duty payment challan/receipt (if applicable)
- Any regulatory approvals (for specific sectors like insurance, NBFCs, etc.)
Step 6: File MGT-14 (if applicable)
Required if there is a special resolution or change in AoA and MoA. Attach the following documents with the form:
- Certified copy of the Special Resolution passed at the EGM
- Explanatory Statement under Section 102 of the Companies Act, 2013.
- Notice of EGM (issued to shareholders)
- Altered Articles of Association (AoA)
- Altered Memorandum of Association (MoA)
Buy-back of Shares
The company may repurchase its shares from its existing shareholders. Companies may buy back shares to boost shareholder value or reduce capital under Section 68 of the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014. When buying back shares, listed companies must comply with SEBI regulations.
Conditions:
- Buy-back cannot exceed 25% of the total paid-up capital and free reserves.
- For equity shares, the 25% limit is calculated on the paid-up equity share capital only.
- The debt-to-equity ratio post buy-back must not exceed 2:1 (unless the Central Government prescribes a higher ratio for specific classes of companies).
- All buy-back shares must be fully paid up.
Restrictions
- No further issue of the same kind of shares within 6 months (except by way of bonus shares or conversion of warrants/debentures).
- No buy-back through a subsidiary or investment company.
- Cannot be used to manipulate share price or deceive shareholders.
Rights issue of shares
A Rights Issue is a method by which a company offers new shares to its existing shareholders in proportion to their current holdings. It allows shareholders to maintain their percentage of ownership while enabling the company to raise additional capital.
Features
- No shareholder approval is needed if the authorised capital permits.
- Shares are offered at a discounted price (often below market value).
- The shareholder may accept, reject, or renounce the offer (transfer rights to someone else).
- Issued under Section 62(1)(a) of the Companies Act, 2013.
Preferential Allotment of Shares
Preferential Allotment involves issuing shares or convertible securities to a select group of investors, not necessarily existing shareholders. This method is typically used for strategic investors, promoters, or financial institutions. It is issued under Section 62(1)(c) and Section 42 of the Companies Act, 2013, and requires shareholder approval by special resolution and compliance with pricing, valuation, and lock-in norms.
Features
- Requires a valuation report from a Registered Valuer.
- Subject to minimum pricing based on SEBI guidelines (for listed companies).
- Allotment must be completed within 60 days of receiving the application money.
- All monies must come from bank accounts (no cash).
Why Choose Kanakkupillai?
When your company is considering a change in its share capital, whether it’s increasing, reducing, issuing bonus shares, or executing a buy-back, you need a partner that provides efficiency and personalised attention. Kanakkupillai provides:
- Expert Assistance: Our team of qualified professionals - CAs, CSes, and legal experts has a deep understanding of the Companies law and its allied rules. Your capital restructuring —whether an increase, reduction, rights issue, or buyback — is handled with complete regulatory compliance.
- End-to-End Assistance: We will not leave you hanging with “Fill Form SH-7” instructions. We are here to draft your board resolutions, EGM notices, amended MoA/AoA, file SH-7 and MGT-14, and handle the RoC ourselves.
- On time Compliance: Deadlines with the RoC are strict. Miss one, and penalties follow. We track everything, including filing windows, notice periods, and compliance dates, and ensure it’s all done on time.
- Affordable, Transparent Pricing: We do not believe in hidden fees. From the start, you will know precisely what the government fees, stamp duty, and professional charges are.
- Dedicated Support: Our team is available around the clock to help you with your doubts and queries.
Frequently Asked Questions
What is the difference between authorised, issued, subscribed, and paid-up capital?
Authorised capital is the maximum capital a company can issue as per its MoA. Issued capital is the portion of authorised capital offered to investors. Subscribed capital refers to the amount of capital that investors agree to purchase, while paid-up capital represents the actual amount paid by shareholders to the company.Can a company change its share capital multiple times in a year?
Yes, a company can change its share capital multiple times, provided it complies with the procedures outlined under the Companies Act, 2013, each time, such as obtaining approvals, amending its charter documents, and filing the necessary forms with the Registrar of Companies.Is it mandatory to amend the Memorandum of Association while increasing share capital?
Yes, when a company increases its authorised share capital, it must amend Clause V (Capital Clause) of the Memorandum of Association (MoA) to reflect the revised capital.What are the consequences of not filing Form SH-7 on time?
Failure to file Form SH-7 within 30 days of passing the resolution may lead to penalties under Section 64 of the Companies Act, 2013. Additional fees apply for late filings, and persistent non-compliance may result in further regulatory action.Can a company with existing debts go for a buy-back of shares?
Yes, but only if the debt-to-equity ratio remains 2:1 or lower after the buy-back. If the ratio exceeds the permissible limit, the company must either reduce the buy-back size or infuse additional equity.What is the tax treatment of a buy-back for shareholders?
For unlisted shares, the company pays buy-back tax under Section 115QA of the Income Tax Act, and the income is exempt for shareholders. For listed shares, capital gains tax applies to shareholders, depending on the holding period.What is the minimum gap required between two preferential allotments?
There is no specific gap prescribed under the Companies Act, 2013, but each preferential allotment must be completed within 60 days of receiving the application money. However, listed companies must follow SEBI regulations, which may impose conditions.Can a shareholder refuse to subscribe to a rights issue?
Yes. Rights issues are not mandatory for shareholders. They can choose to subscribe, renounce (transfer rights), or let the offer lapse. The company can then allot unsubscribed shares to others.What happens to the unutilized portion of authorized share capital?
Unissued or unutilized authorized share capital remains available for future use. It doesn’t incur any cost until shares are issued, and companies can issue new shares up to the authorized limit without increasing it again.Is NCLT approval required for increasing authorized capital?
No, NCLT approval is not required to increase authorised share capital. The process involves board and shareholder approvals along with RoC filings. NCLT approval is only required for actions like the reduction of share capital under Section 66.Can share capital be increased without holding an EGM?
Only in some instances, such as when 100% of shareholders provide written consent, can an EGM be bypassed. However, for most companies, a general meeting is the standard route to approve capital changes.Are there any sector-specific rules for changing share capital?
Yes. Companies in sectors like banking, insurance, and NBFCs must take prior approval from regulatory bodies like the RBI, IRDAI, or SEBI before making certain capital changes. Always verify sector-specific requirements before proceeding.Can a private company issue shares through a public rights issue?
No. Private companies can only offer shares privately to existing shareholders or through preferential allotments. Public rights issues are reserved for public limited companies that meet eligibility criteria under SEBI guidelines.What makes Us Different
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