Process of Splitting of Shares Based on Companies Act 2013 and SEBI (LODR) Regulations 2015
The process of splitting shares is a significant corporate action that involves numerous steps and compliance requirements under the Companies Act 2013 and SEBI (LODR) Regulations 2015. This comprehensive guide breaks down each step, from the initial board resolution to the post-split compliance, ensuring that companies understand and adhere to all legal and regulatory obligations. By following these procedures meticulously, companies can effectively manage their share capital structure and communicate changes to shareholders and regulatory bodies.
Board Resolution
- Reference: Section 179 of the Companies Act, 2013.
- The board of directors must approve the proposal for splitting shares.
- A resolution must include:
- – Split ratio (e.g., 2:1, 5:1)
- – Record date
- – Rationale for the split
- – Amendments to the capital clause of the MoA and AoA, if required
- – Authorization to a director or company secretary to carry out necessary action
Shareholders’ Approval
- Reference: Section 61(1)(d) of the Companies Act, 2013.
- Pass a special resolution in a general meeting.
- Notice of the meeting must include:
- – Details of the proposed split
- – Justification for the split
- – Potential impact on shareholding and market price
- – Date, time, and venue of the meeting
- Resolution must be approved by at least three-fourths of the votes cast by the shareholders.
Filing with Registrar of Companies (RoC)
- Reference: Sections 117 and 64 of the Companies Act, 2013.
- After obtaining shareholder approval, file the special resolution with the RoC using Form MGT-14 within 30 days.
- Attach certified copies of the special resolution and the explanatory statement.
- Pay the prescribed fee.
Amendment to Capital Clause
- Reference: Sections 13 and 14 of the Companies Act, 2013.
- Amend the MoA and AoA to reflect the new share capital structure.
- File the amended documents with the RoC.
- Update the capital clause in the MoA.
Intimation to Stock Exchanges
- Reference: Regulation 42 of SEBI (LODR) Regulations, 2015.
- Notify the stock exchanges about the board meeting’s decision to split shares immediately after the meeting.
- Provide details of:
– Split ratio
– Record date
– Purpose and impact of the split
– Any other relevant information
Record Date
- Reference: Regulation 42 of SEBI (LODR) Regulations, 2015.
- The board of directors sets a record date.
- The record date is the cut-off date to determine the shareholders eligible for the split shares.
- Inform the stock exchanges of the record date at least seven working days in advance.
Implementation
- Reference: Regulations 29 and 30 of SEBI (LODR) Regulations, 2015.
- Update the company’s share register and records to reflect the new share structure.
- Issue new share certificates to shareholders or update demat accounts accordingly.
- Inform shareholders about the completion of the split.
Post-Split Compliance
- Reference: Regulations 7 and 40 of SEBI (LODR) Regulations, 2015.
- Issue new share certificates reflecting the split ratio.
- Update the next quarterly filings with the stock exchange.
- Ensure all statutory and regulatory requirements are met
Communication to Shareholders
- Reference: Regulation 30 of SEBI (LODR) Regulations, 2015.
- Inform shareholders about the share split.
- Explain the rationale and impact on their shareholding.
- Provide details on how the split will affect their shareholding and any necessary actions they need to take
Updating Records
- Reference: Section 88 of the Companies Act, 2013.
- Update the company’s records, including the share register and books of accounts, to reflect the new share structure post-split.
- Ensure that all records are accurate and up to date.
Checklist for Fixing of Record date / Book Closure for the purpose of Stock Split
The company will have to fix a Record Date/ Book Closure (BC/RD) for Stock Split after obtaining Shareholders approval for the same
The procedure for the same is as follows:
As per provisions of Regulation 42 of SEBI (LODR), 2015 the company may fix a BC/RD for stock split and give advance intimation of at least 7 working days to the Exchange (BSE)
The following documents need to be submitted (filed on BSE Listing Centre) alongwith the notice of Record Date:
1. Certified true copy of the Resolution passed by the shareholders of the company for Stock Split. Resolution passed for treatment of Fractional entitlements, if any, should also be provided.
2. Undertaking of company for Stock Split (Format below).
3. Online Payment thru Payment gatewayof Rs. 50,000/- plus GST as applicable.
4. The new ISIN number assigned by the depository should be informed to the Exchange at least 3 working days prior to the RD/BC date.
Undertaking from the Company
The Board of Directors of the company has fixed a record date/ book closure of DD/MM/YYYY for purpose of subdivision/stock split of Rs. /- per share of the company into the shares of Rs. /- each.
We hereby undertake that the company will set up Auto Corporate Action with both the Depositories – CDSL & NSDL for execution before beginning of the day (BOD) on the first date of book closure period (in case of Book Closure) or before BOD on the trading day succeeding the record date (in case of Record Date).
Further, the company undertakes to resolve any complaint on account of the failure on the part of company to complete all formalities for execution of Auto Corporate Action.
Date :
Place :
Conclusion: Splitting shares is a meticulous process that requires careful planning and adherence to multiple regulations under the Companies Act 2013 and SEBI (LODR) Regulations 2015. From securing board and shareholder approval to ensuring proper filings and communications, each step is crucial to ensure compliance and smooth execution. By understanding and following these guidelines, companies can efficiently navigate the complexities of share splits, maintain accurate records, and keep shareholders informed, thereby fostering transparency and trust.
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