Alteration In Share Capital Clause

Question 1

Alteration

Answer 1

Let’s break down the alteration of the share capital clause in the memorandum, along with examples to help you understand.

A company with share capital can alter its authorized capital clause in the memorandum through a special resolution to:

1. Increase Authorized Capital:
   
   • Example: If a company wants to expand its operations, it might increase its authorized capital from Rs. 500 million to Rs. 1 billion.
2. Consolidate and Divide Share Capital:
   
   • Example: A company with 5 million shares of Rs. 10 each might consolidate them into 2.5 million shares of Rs. 20 each.
3. Sub-Divide Shares:
   
   • Example 04: ABC (Pvt) Limited has an authorized and paid-up share capital of Rs. 500 million divided into 5 million shares of Rs. 100 each. The company can alter this to 50 million shares of Rs. 10 each. Each member with one share will now have 10 shares, but the overall paid-up value remains the same.
4. Cancel Unissued Shares:
   
   • Example: If a company has authorized 1 million shares but only issued 800,000, it can cancel the remaining 200,000 shares and reduce its authorized capital accordingly.

• Requirement: The company must file the resolution and the altered copy of the memorandum with the registrar within 15 days of passing the resolution.
• Example 06: JKL Limited, with authorized and paid-up share capital of Rs. 500 million divided into 5 million shares of Rs. 100 each, decides to sub-divide its shares into shares of Rs. 10 each. After passing a special resolution on October 24, 2022, JKL Limited must file the resolution and altered memorandum with the registrar by November 7, 2022.

• Proportional Rights: In the event of consolidation or sub-division, the rights attached to the new shares must be proportional to the rights attached to the previous shares.
• Same Class Rights: If new shares are of the same class as previously issued shares, the rights attached to the new shares must be the same as those attached to the previously held shares.

1. Possible Alterations: Companies can increase authorized capital, consolidate and divide shares, sub-divide shares, or cancel unissued shares through a special resolution.
   
   • Example: Altering 5 million shares of Rs. 100 each to 50 million shares of Rs. 10 each.
2. Filing Requirement: Companies must file the resolution and altered memorandum with the registrar within 15 days.
   
   • Example: Filing by November 7, 2022, for a resolution passed on October 24, 2022.
3. Shareholder Rights: Rights attached to new shares must be proportional and consistent with those of previously issued shares.
   
   • Example: Rights of new shares after sub-division remain the same as before.