Changes in Share Capital – Procedure & Compliance
Changes in share capital refer to modifications in the authorized, issued, subscribed, or paid-up capital of a company. These changes must comply with the provisions of the Companies Act, 2013, and require proper approvals and filings with the Ministry of Corporate Affairs (MCA).
Types of Share Capital Changes
1. Increase in Authorized Share Capital
Raising the maximum limit of share capital that a company is permitted to issue to shareholders, requiring amendment to the Memorandum of Association.
2. Increase in Paid-up Share Capital
Increasing the amount of capital that has been paid by shareholders through further issue of shares or conversion of securities.
3. Alteration of Share Capital
Modification of existing share capital through sub-division (splitting shares into smaller denominations), consolidation (combining shares into larger denominations), or reclassification (changing the class of shares).
4. Reduction of Share Capital
Decreasing the issued share capital through cancellation of shares, diminution of liability, or paying off returned capital, requiring NCLT approval.
5. Issue of Bonus Shares
Issuance of additional shares to existing shareholders without additional payment, using reserves or accumulated profits.
6. Issue of Rights Shares
Offering additional shares to existing shareholders in proportion to their current holdings, often at a discounted price.
7. Conversion of Securities
Transforming securities like preference shares or debentures into equity shares as per the terms of issue.
Process for Changes in Share Capital
1. Board Approval
- Convene a Board Meeting.
- Pass a resolution for approval of share capital modification.
- Decide on the mode of alteration (e.g., rights issue, bonus issue, conversion, etc.).
2. Shareholder Approval (If Applicable)
- Issue a notice for EGM with an explanatory statement.
- Obtain shareholders' approval through a special resolution (if required under the Companies Act, 2013).
3. Regulatory Filings with MCA
- Increase in Authorized Share Capital: File Form SH-7 with MCA within 30 days of passing the resolution.
- Allotment of Shares: File Form PAS-3 within 15 days of the allotment.
- Alteration of Share Capital: File Form SH-7 if there is a subdivision, consolidation, or conversion.
- Reduction of Share Capital: Obtain approval from the National Company Law Tribunal (NCLT) and file Form SH-7 & INC-28.
- Bonus & Rights Issue: File Form PAS-3 with MCA.
Key Compliance Aspects & Penalties for Non-Compliance
Key Compliance Aspects
- Ensure compliance with the Articles of Association (AOA) and Companies Act, 2013.
- Maintain proper board and shareholder meeting minutes.
- Timely filing of resolutions and forms with MCA to avoid penalties.
- Adhere to SEBI guidelines if the company is listed.
Penalties for Non-Compliance
Failure to comply with share capital alteration regulations may lead to penalties, including:
- Fines ranging from ₹10,000 to ₹1 lakh for the company.
- Penalties of ₹10,000 to ₹50,000 for officers in default.
- Additional penalties for continuing non-compliance.
- Potential disqualification of directors in severe cases.
- Regulatory scrutiny and potential legal proceedings.
Share Capital Change Process
Board Approval
Board Meeting & Resolution
Shareholder Approval
EGM & Special Resolution
Regulatory Filings
Filing with MCA & Other Regulators
Our Share Capital Modification Services
- Expert guidance on all types of share capital changes
- Compliance with Companies Act, 2013 and MCA regulations
- Proper documentation and timely regulatory filings
- Assistance with Board and shareholder approvals
- Support for NCLT approvals when required
- End-to-end process management from planning to execution