Introduction: Navigating the legal processes involved in corporate governance is paramount for private limited companies. Sub-dividing shares is a significant step that requires meticulous adherence to statutory regulations. This article elucidates the procedure, resolutions, and accounting entries essential for executing share sub-division in compliance with the Companies Act, 2013.
|
Applicable Act |
Companies Act, 2013 | ||||||||||||||||
| Applicable Section | 61(1)(d) | ||||||||||||||||
| Procedure for sub-division/Stock Split | 1. Check Articles of Association for authority to alter share capital
2. btain Investor’s consent before sub-division/split. 3. Board resolution to approve sub-division/split of share capital and to give necessary authorities in this regard and consider alteration of Memorandum of Association. 4. Pass Ordinary resolution for sub-division/split of share capital 5. Pass Ordinary Resolution for alteration of Memorandum of Association. 6. Eform SH-7 for notice to registrar for alteration of share capital within 30 days of approval of members along with: (a) Ordinary resolution; and (b) Altered Memorandum of Association. |
||||||||||||||||
| Board Resolutions to be passed | [Example – Sub-dividing 10,000 equity shares of the Company, such that each equity share having nominal value of Rs.100/- (Rupees Hundred Only) each be sub-divided into 10,00,o00 (Hundred) Equity Shares having nominal value of Re. 1/- (Rupee One Only) each fully paid-up.]
TO CONDIER AND APPROVE SUB-DIVISION (STOCK SPLIT) OF EQUITY SHARES OF THE COMPANY FOR RS. 100/- (RUPEES HUNDRED ONLY) EACH TO RE. 1/- (RUPEE ONE ONLY) EACH “RESOLVED THAT pursuant to the provisions of Section 61 and other applicable provisions, if any, of the Companies Act, 2013, read with rules made thereunder or any modification(s) or re-enactment thereof, subject to the provisions of Articles of Association and subject to the approval of shareholders in general meeting, the consent of the Board be and are hereby accorded for sub-dividing the equity shares of the Company, such that each equity share having nominal value of Rs.100/- (Rupees Hundred Only) each be sub-divided into 100 (Hundred) Equity Shares having nominal value of Re. 1/- (Rupee One Only) each fully paid-up. RESOLVED FURTHER THAT pursuant to Section 13 and other applicable provisions, if any, of the Companies Act, 2013, read with rules made thereunder the existing clause V of the Memorandum of Association of the Company relating to share capital be and is hereby deleted and in its place the following new and amended clause V be substituted: Clause V “V. The Authorized Share Capital of the Company is Rs. 10,00,000/- (Rupees Ten Lakh Only) divided into 10,00,000 (Ten Lakh) Equity Shares of Re. 1/- (Rupees One Only) each” “RESOLVED FURTHER THAT upon the subdivision of Equity Shares of the Company as aforementioned, the existing share certificate(s) pertaining to the current Equity Shares of Face value of [Existing Face Value] each held in physical form shall be automatically deemed cancelled and rendered null and void effective from the Record Date of subdivision. The Company is hereby authorized to issue and dispatch new share certificate(s) directly, without necessitating the surrender of existing share certificate(s), within the prescribed period or as may be prescribed from time to time. For shares held in dematerialized form, the respective beneficiary accounts of shareholders with the Depository Participants shall be credited with the number of subdivided Equity Shares, replacing the existing credits representing the Equity Shares prior to subdivision.” “RESOLVED FURTHER THAT [Name and Designation] [DIN – __________] and/or [Name and Designation] [DIN: ________] of the Company be and are hereby jointly/severally authorized to do, perform and execute all such acts, deeds, matters and things as it may consider necessary, expedient, usual or proper to give effect to this resolution including but not limited to execution of all necessary documents the Depositories, and/or any other relevant statutory authority, if any, cancellation or rectification of the existing physical share certificates in lieu of the old certificates with regard to the subdivision of the equity shares as aforesaid or for any matters connected herewith or incidental hereto.” |
||||||||||||||||
| Shareholder Resolutions to be passed | 1. SUB-DIVISION (STOCK SPLIT) OF EQUITY SHARES OF THE COMPANY FOR RS. 100/- (RUPEES HUNDRED ONLY) EACH TO RE. 1/- (RUPEE ONE ONLY) EACH
To consider and, if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT pursuant to the provisions of Section 61 of the Companies Act, 2013, and other applicable provisions, if any, of the Companies Act, 2013, and the provisions of the Memorandum and Articles of Association of the Company and subject to the approval(s), consent(s), permission(s), sanction(s), if any, as may be necessary from the appropriate statutory authority(ies), the consent of the shareholders be and is hereby accorded for sub-dividing the equity shares of the Company, such that each equity share having nominal value of Rs.100/- (Rupees Hundred Only) each be sub-divided into 100 (Hundred) Equity Shares having nominal value of Re. 1/- (Rupee One Only) each fully paid-up. “RESOLVED FURTHER THAT pursuant to the Sub-division of equity shares of the Company, the Authorized, Issued, Subscribed and Paid-up Equity Share Capital of nominal value of Rs. 100/- (Rupees Hundred Only) each, shall stands sub-divided into 100 (Hundred) Equity Shares of nominal value of Re. 1/- (Rupee One Only) each. “RESOLVED FURTHER THAT upon the subdivision of Equity Shares of the Company as aforementioned, the existing share certificate(s) pertaining to the current Equity Shares of Face value of [Existing Face Value] each held in physical form shall be automatically deemed cancelled and rendered null and void effective from the Record Date of subdivision. The Company is hereby authorized to issue and dispatch new share certificate(s) directly, without necessitating the surrender of existing share certificate(s), within the prescribed period or as may be prescribed from time to time. For shares held in dematerialized form, the respective beneficiary accounts of shareholders with the Depository Participants shall be credited with the number of subdivided Equity Shares, replacing the existing credits representing the Equity Shares prior to subdivision.” “RESOLVED FURTHER THAT [Name and Designation] [DIN – __________] and/or [Name and Designation] [DIN: ________] of the Company be and are hereby jointly/severally authorized to do, perform and execute all such acts, deeds, matters and things as it may consider necessary, expedient, usual or proper to give effect to this resolution including but not limited to execution of all necessary documents the Depositories, and/or any other relevant statutory authority, if any, cancellation or rectification of the existing physical share certificates in lieu of the old certificates with regard to the subdivision of the equity shares as aforesaid or for any matters connected herewith or incidental hereto.” 2. ALTERATION OF MEMORANDUM OF ASSOCIATION To consider and, if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: “RESOLVED THAT pursuant to the provisions of Section 13 of the Companies Act, 2013 and other applicable provisions, if any, of the Companies Act, 2013, the consent of the Shareholders be and is hereby accorded to alter the Memorandum of Association. “RESOLVED FURTHER THAT the Existing Clause V of the Memorandum of Association of the Company, be and is hereby deleted and substituted with the following: “V. The Authorized Share Capital of the Company is Rs. 10,00,000/- (Rupees Ten Lakh Only) divided into 10,00,000 (Ten Lakh) Equity Shares of Re. 1/- (Rupees One Only) each” “RESOLVED FURTHER THAT [Name and Designation] [DIN – __________] and/or [Name and Designation] [DIN: ________] of the Company be and are hereby jointly/severally authorized to do perform and execute all such acts, matters, deeds and things as it may consider necessary, expedient, usual or proper to give effect to this resolution and to comply with all other requirements in this regards and for any matter connected herewith or incidental hereto.” |
||||||||||||||||
| Accounting entry | Current paid-up share capital structure –
No. of shares : 10,000/- Per share : Rs. 100/- Total Share value : Rs. 10,00,000/- After stock split 100:1 ratio No. of shares : 10,00,000/- Per share : Rs. 1/- Total Share value : Rs. 10,00,000/- Journal Entry
|
||||||||||||||||
| List of documents to be submitted to NSDL in respect of sub-division of shares | 1. Certified true copy of the Shareholders’ Resolution approving the sub-division of shares.
2. Certified true copy of Board Resolution approving the sub-division of shares. 3. In case the company is unlisted, copy of letter / notice sent to the shareholders informing them about the record date 4. Corporate Action Information Form (for shares) duly filled in with details post subdivision (format enclosed). 5. CFI Details as per format for the activation of new ISIN. Note: The aforesaid documents should be submitted atleast ten days before the record date. |
Conclusion: Executing a share sub-division in a private limited company demands adherence to legal protocols and meticulous documentation. By following the procedures outlined under the Companies Act, 2013, and ensuring compliance with statutory requirements, companies can navigate the sub-division process seamlessly. Understanding the resolutions, accounting entries, and document submission guidelines is crucial for upholding corporate governance standards and ensuring regulatory compliance in the realm of corporate finance.
Author Bio
KINDLY ELABORATE ABOUT HOW TO DECIDE THE RECORD DATE
IN CASE COMPANY GOT ISIN ON 11 NOV THEN WHAT WILL BE THE RECORD DATE FOR BM: 15 NOV AND EGM :10 DEC 2024