The share capital clause of memorandum of association (SCC) of a Company can be altered as per the provisions of Section 61 of the Companies Act, 2013 (Act).
Section 61 provides that the articles of association (AOA) shall contain provisions for alteration of SCC of a Company, thereafter the company shall obtain an approval of its shareholders by passing an ordinary resolution in their general meeting.
Methods of alteration of SCC:
1. Increase of authorized share capital;
2. Consolidation of shares into the shares of larger amount;
But prior approval of the National Company Law Tribunal (“NCLT”) shall be obtained, for consolidation of shares which results in the change of voting percentage of the Shareholders of the company;
3. Conversion of fully paid-up share capital into stock or Vice versa;
4. Sub-division of shares into the shares of smaller denominations.
If in case, shares are partly paid-up, then the un-paid proportionate amount in sub-divided shares shall be the same as the un-paid amount in the shares prior to the sub-division.
E.g. A Ltd. have shares of Rs. 10/- Each, paid-up Rs. 8/- and unpaid Rs. 2/-. Company intends to subdivide the shares in two shares of Rs. 5/- each, therefore the un-paid amount per share shall be Rs. 1/- per shares.
5. Diminution of un-subscribed share capital.
Approvals required for alteration of SCC:
Here is the brief procedure of alteration of SCC where the approval of NCLT is required, i.e. consolidation of shares results in the change of voting percentage.
Case study of ‘Chembra Peak Estate Limited’ (hereinafter referred to as “CPEL”), brief facts:
Authorised Share capital= Rs. 75,00,000/- and paid-up share capital= 48,40,000/- divided into equity shares of Rs. 10/ share.
|Total no of shares (in Rs.)||Face value per share (in Rs.)||Paid-up capital (in Rs.)|
|Existing position of share capital||4,84,400||10||48,44,000|
|Proposed position of share capital||80||60,550||48,44,000|
Consolidation of 6055 equity share into one equity shares.
|Pre consol-idation Share-holding (4,84,400 shares)||Pre cons-olidation voting rights||Post consol-idation Share-holding (80 shares)||Post conso-lidation voting rights|
|Mr. A||10000||2.06%||10000/6055= 1.65||1||1.25|
For the aforesaid fractions Mr. A and Mr. B would get proportionate money.
In the aforesaid case, Company had used the consolidation of shares as a mean of providing an exit opportunity to its public shareholders, however, there are other methodologies available under the Companies Act, 2013 for the same, such as reduction of share capital under section 66, buyback of shares under section 68 and compromise and arrangements under section 230 of the said Act. But the scheme of providing exit opportunity to the public shareholders of a company under section 61(1) (b) is very much convenient than other methodologies available
 CP No. 459/BB/2018 and Company Appeal No. 36 of 2019