In this article, Sashvat Aggarwal, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata explains Alteration of Share Capital under Companies Act, 2013.

Introduction

The capital of a company is separated into units of a fixed denomination and such unit is a share. A share in the share capital of a company and includes stock which is defined under Section 2(84).

Section 2(8) of The Companies Act 2013, defines that “Authorised capital” or “nominal capital” means such capital which is authorized by the memorandum of a company to be the maximum amount of share capital of the company. The companies are allowed to alter the authorized share capital according to the procedures mentioned in Section 61 to 64 read with Section 13 and 14 of the Companies Act. An increase or decrease in the share capital of a company may be carried out as and when the company requires thus leading to an alteration in the company’s share capital. The alterations to the capital clause have to be done according to the Companies Act, 2013.

The procedure involved in altering the Share Capital

1. It has to be confirmed whether a company is authorized to increase its share capital according to the Articles of Association (AOA) and if it does not authorize then the procedure for such alteration has o be carried out.
2. A board meeting should be called for an Extraordinary General Meeting (EGM) to get the approval of the shareholders for such alteration.
3. The EGM should be called comprising of the shareholders by sending a notice mentioning the purpose of the scheduled meeting regarding the alteration of the MOA and AOA thus altering the Share capital of the company.
4. The Special resolution shall be passed to alter the MOA and AOA thus altering the Share Capital of the Company.
5. Authorising the board to file necessary forms and resolutions with Registrar of Companies (ROC) having jurisdiction.
6. The e- form SH-7 with ROC on payment of a stipulated fee.

Once the AOA has been altered the board meeting has to be called by the company. Every member, legal representative or the assignee, the auditor(s) and every director of the company has to be given a notice of 21 days prior to the actual date of the meeting. The notice shall be written or in an electric form. The general meeting can also be convened at a shorter notice if 95 percent of the members who are allowed to vote at the meeting give their consent in the manner prescribed written or electronic.

The place of the meeting, the date of the meeting and the hour of the meeting shall be specified in the notice along with the business agenda of the meeting which is mentioned under Section 101 of the Companies Act. Along with the notice a statement should be attached therewith specifying the particulars and objects regarding every point of extraordinary business to be carried on at the general meeting, concerning the financial or any other kind of interest related to all the directors and the managers and people related to the key managerial persons according to section 102 of the CA, 2013.

Once the formalities of the notice have complied with the company shall call an EGM and the members have to vote either in favor or against the alteration of the authorized share capital. An ordinary resolution is passed by the board members after holding of the EGM.

Alteration of the MOA and AOA

1. The power of a limited company to alter its share capital is given under Section 61 of the Companies Act, 2013. Sub-clause further states that a limited company having a share capital may, if so authorized by its articles, alter its memorandum in its general meeting to:
   1. Increase its authorized share capital by such amount as it thinks expedient
2. The authorized share capital of the company can be increased by altering the memorandum of association. The provisions regarding the alteration of memorandum of association and Articles of association are given under Section 13 and 14 of the Companies Act respectively.
3. A company may alter the provisions of the memorandum after it has passed a special resolution thus complying with the procedural requirements given under Section 13.
4. An alteration has to be made in the Memorandum Of Association and the Articles Of Association under clause 5 and 4 respectively.
5. According to Clause 5 ‘, The Authorized Share Capital of the company is INR 1,00,000/- divided into 10,000 Equity Shares of INR 10 each. The minimum paid up share capital of the company is INR 1,00,000.
6. Alteration of AOA with regards to increasing of share capital is given under Clause 4.
7. Section 14 of the Companies Act, 2013 also states that where the company does not have the authorization to amend its AOA then the alteration can be carried out by the procedure of passing a special resolution.
8. Section 14 states that the alteration to a company’s articles can be done only by passing a special resolution and the order of approval of the alteration carried out has to be filed with the ROC accompanied with the hard copy of the actual altered articles not later than fifteen days in the manner which is prescribed. The alteration is only valid if there was a provision in the original articles

Registrar to be given Notice

The registrar of companies shall be notified within a period of thirty days from such alteration and a copy of the altered memorandum has to be provided as well. In case of default by the company or any of its officers, the company or its officers shall be liable and punishable with a fine which may extend up to thousand rupees for each day of delay or rupees five lakh whichever is less. The above provision is given under Section 64 of the Companies Act.

Purpose of the form

Whenever a company alters its share capital or number of members independently or increases the share capital by conversion of debentures/loans due to the order of Central Government, then a return shall be filed with the registrar within 30 days of such alteration. 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

1. Notice of extraordinary general meeting
2. Certified true copy of the ordinary resolution
3. Altered Memorandum of association
4. Altered AOA, if any.

E-Form MGT 14 to be filed

While the filing of the Form MGT- 14 the provisions mentioned under section 117 (1) and Section 192 of The Companies Act 2013 have to be dealt with. Under sub-section 3 clause 1 of Section 117, the provision mentioned therein also apply to a special resolution.

The copy of all the decision taken with respect to the matters which are specified under subsection 3 along with the explanations under section 102 shall be attached therewith to the notice convening the EGM in which the proposed resolution shall be passed should be filed with registrar not exceeding thirty days along with the stipulated fees which has to be paid as specified under Section 403 of the Companies Act.

Section 117(1) states that a copy of the resolution which has the effect of altering the articles and copy of every agreement referred in sub-section 3 shall be attached to every copy of the articles issued after passing of the resolution or making of the agreement.

Repercussions of not filing the form

According to section 117 (2) where the company fails to comply with the provisions mentioned in sub-section (1) the company shall be liable to pay a fine which shall not be less than five lakh rupees and may extend up to twenty-five lakh rupees. Each officer of the company who has defaulted along with the liquidator of the company shall be liable to pay a fine of rupees one lakh which may extend up to five lakh rupees.

Attachments

The below-mentioned documents have to be attached:

1. The true copy of the resolution with the copy of explanations under Section 102.
2. Altered MOA (Mandatory in case any change in MOA).
3. Altered AOA

Therefore, by complying with the above provisions and procedure the company can alter its capital clause by altering the MOA and AOA when it needs to raise more money.