1. Alteration is much wider term than Reduction, since Alteration may be increase or decrease or cancellation in share capital, but Reduction is a much restricted phenomena wherein the only consequence that needs to be achieved here is overall decrease in Share Capital.
2. As per Section 61 of Companies Act of 2013, there are almost five ways of altering a company’s share capital which is limited by shares: firstly by increasing the authorized Share Capital by altering Capital Clause in MoA, secondly consolidating larger amount per share or dividing such may be in the form that earlier price of one share was Rs. 10 and now the company can increase that per share price to Rs. 50, thirdly converting all paid up shares in stock and then can also reconvert the same, fourthly sub-dividing the share which means that earlier where the price of share was Rs. 10 per share and now the same can be divided into Rs. 2 per share, and fifthly the company has this right to cancel such shares that haven’t been subscribed by anyone and are left with the company itself.
Basic requirement: For fulfilling above five ways is:
a. Articles of Company giving proper Authorization for the same; if not then alter them as per Section 14 of Companies Act of 2013.
b. Giving 21 days clear notice to Stock Exchange.
c. Convene Board Meeting and pass respective resolution, i.e. of increase/consolidation/sub-division/conversion, as the case may be, and fix date,time and venue for general meeting for passing such special resolution.
d. Holding General Meeting after sending particulars to Stock Exchanges as the case may be and pass Special Resolution, only and only if Article not permit for the same.
e. File MGT-14 with RoC concerning copy of general meeting, annexures, and of altered AoA & MoA within 30 days of passing such special resolution.
f. File SH-7 with Registrar having confirming respective provisions of Section 64 within 30 days of passing such special resolution.
g. At the end, making necessary changes in AoA & MoA, after complying with all the necessary SEBI Regulations in place.
3. As per Section 66 of Companies Act of 2013, there are almost three ways of reducing share capital for a company limited by shares or guarantee, subject to such confirmation from the Tribunal: firstly reducing or extinguishing liability on such unpaid shares of the company, secondly either with or without extinguishing it, cancel such paid up share capital that’s lost or not represented by assets of company, and thirdly paying such excess share capital lying with the company and thereby altering its MoA accordingly, but all of these won’t be possible if company hasn’t repaid any deposits that it accepted or the interest thereon.
Basic Procedure (little bit different from Alteration of share capital):
1. Convene Board Meeting, and approve such scheme and fix date, time and venue for general meeting for passing of such special resolution.
2. Convene GM and pass SR.
3. File MGT-14 within 30 days of passing of SR.
4. Application to Tribunal in Form RSC-1 for confirmation of reduction, with requisite fees.
5. Above application to be supported by list and name of creditors verified by MD of that company, along with being verified finally by the Auditor himself through a certificate, and at the same time, certificate by company’s auditor that no arrears of repayment lies and no neglection of Accounting treatment and are in conformity with proposed Accounting Standards as per Sec. 133 of CA’13.
6. Tribunal then within 15 days of getting application will ask for any objections or suggestions by Central Government & RoC in Form RSC-2, SEBI in Form RSC-2, and creditors in Form RSC-3.
7. Notice shall also be sent to creditors within 7 days of giving previous directions stating all the particulars of the amount owed to each one of them.
8. Tribunal shall also publish such notice within 7 days of giving such directions in a leading English newspaper, and in a leading vernacular language newspaper, in such city where the Reg. office of the company is situated, in Form RSC-4, and also upload the same in company’s website for inviting any proposed objections.
9. Objections, if any to be filed within 3 months of publication of notice with Tribunal.
10. Confirm in Affidavit through Form RSC-5 within 7 days of passing of such notice that such notice has been published and dispatched.
11. If no objections received, then the Tribunal will approve reduction in Share Capital and minutes thereon in Form RSC-6 with required T&C.
12. Registrar at the end will issue certificate in Form RSC-7.
Therefore, after looking at the complete procedure, we now look at the basic difference that emerge from the same:
|
Alteration of Share Capital |
Reduction of Share Capital |
| Governed by S.61 of CA’13 | Governed by S.66 of CA’13 |
| Diminution in Authorised S.C. | Decrease in Issued Capital |
| Such shares that haven’t been taken up by any person (Having almost five ways to do it) | Such unpaid/uncalled shares or are not represented by company’s assets (Can be done through three ways) |
| Here, the interest of creditors not affected | Yes-Affected, that’s why their consent and No-Objection is required from them |
| Can work by passing Ordinary Resolution | Special Resolution is must here |
| There will always be the change or alteration in Capital Clause as Authorised Capital is affected | May or may not change capital clause. |
| Approval of Court (Tribunal) is not required here | Required |
| There is no change in name of the company | Yes, there’s a change in name of the company with term added “AND REDUCED” |
| The whole process is easier, flexible and less time consumable as compared to the other. | Lengthy process, as approvals from various stakeholders are required. |
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