alteration of share capital

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ALTERATION OF SHARE CAPITAL

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Page 1: Alteration of Share Capital

ALTERATION OF SHARE CAPITAL

Page 2: Alteration of Share Capital

Alteration of Share Capital

Alteration of share capital – S 94 (1) Increase in the share capital Consolidation of share capital Conversion of shares into stocks and stocks

into shares Splitting of shares – subdivide into small

amounts Cancellation of shares which are not issued Reduction of shares

Page 3: Alteration of Share Capital

Alteration of Share Capital

• Procedure for increase of share capital– Board Resolution and approval– Notice of general meeting– Ordinary/special resolution– Intimation to the stock exchange

• Three copies of notices• Six copies of resolution

– Filing of special resolution• E-23 Form to the Registrar within 30 days

– Filing of e-form No. 5• Within 30 days of the general meeting• Duly stamped

– Noting the memorandum and articles

Page 4: Alteration of Share Capital

Alteration of Share Capital

• Notice to Registrar of consolidation of share capital, conversion of shares in stocks – 95

• Notice of increase of share capital -97– File notice of increase with the registrar within 30

days after passing the resolution– Details of class of shares– Default is punishable with a fine extending to five

hundred rupees per day of default• Merger of authorized capital during

amalgamation– Tribunals approved scheme– Stating the share capital in its memorandum– Merger resulting in increasing the share capital

• File notice of increase with the Registrar

Page 5: Alteration of Share Capital

Alteration of Share Capital

• Reduction of Share Capital– Reduction of uncalled capital– Reduction of capital on suffering loss

• Conditions for reduction of share capital – 100– Company’s articles should permit the reduction– Shareholders approval by a special resolution– Confirmation by the Tribunal for reduction

• Reduction of shares by– Extinguish or reduce the liability on any of its shares

not paid– Either with or without extinguishing or reducing

liability - pay off paid up share capital which is in excess of requirement

– Share capital lost

Page 6: Alteration of Share Capital

Alteration of Share Capital

• Types of companies eligible for reduction – Company limited by shares– Company limited by guarantee and having

a share capital• Reduction of share capital by

– Buy back of shares – 77A– Apply the share premium account for a

purpose other than purposes authorized– For capital redemption account for a

purpose other than for the issue of bonus shares

Page 7: Alteration of Share Capital

Reduction of share capital

• Motives of reduction of capital– Over capitalization– Writing off of losses and assets– Acquisition of shares which are not in optimum lots– Separation of a shareholder or a group of

shareholders– Distribution of accumulated profits by payment to

shareholders – Family arrangement– Reorganization of capital or quasi capital as part of

scheme of compromise or arrangement or amalgamation

– Revival of a sick company or company in windingup

Page 8: Alteration of Share Capital

Reduction of Capital

• Reduction of securities amount– Utilization of share premium

• Principles governing reduction of capital– Company has the power to reduce its capital– Confirmation by the court– Protection to the minority– Reduction in part or whole– Registration of order and minute of reduction of share

capital– Liability of members in respect of reduced shares –

104• Penalty for concealing name of creditors – 108

– One year imprisonment or fine or both

Page 9: Alteration of Share Capital

Reduction of Capital

• Procedure – Board meeting and approval– General meeting– Intimation to stock exchange– Special resolution– Filing of special resolution– Application to Tribunal– Confirmation from Tribunal– Creditors consent to the reduction

Page 10: Alteration of Share Capital

Buy Back of Securities

Law applicable S 77 A of Company Law SEBI (Buy-Back of Securities ) Regulations 1998 Private Limited Company and Unlisted Public

Limited Company ( Buy-Back of Securities) Rules 1999

Factors for Buy-back of shares Increase the underlying value of shares Enhancing the earning per share (EPS) Reduce the excess share capital Pay off surplus cash not required for the business Prevent takeover bid Part of compromise agreement Rationalize the capital structure

Page 11: Alteration of Share Capital

Benefits of Buy-Back

Improved return on investment Reduced shareholders and better service Good management control Greater liquidity to the shareholders Avoiding unpaid shares and fractional shares Buying of shares from discontented shareholders Limitations

Lock-in-period Non-transferability conditions in the agreements Regulations of RBI, other regulators Listing requirements and conditions in agreement Reduction of free reserves Debt equity ratios, other financial ratios Interest rates from financial institutions

Page 12: Alteration of Share Capital

Buy Back of Securities

Company Law provisions – 77 B Prohibition from buying their own shares

Objective is put checks and balances in the process – 77 A(1)

Permitted by the Tribunal and other laws Company ltd by shares are permitted to

buy back Company buy its own shares from

Its free reserves Securities premium account Proceeds of any other shares or securities

Page 13: Alteration of Share Capital

Buy Back of Securities

Conditions Authority in articles –’ unless authorized by articles’ Limit upto which the securities can be bought

Maximum limit 25% of its total paid up capital and free reserves according to last audited balance sheet

Paid capital include equity and preferential shares Maintenance of post buy-back debt-equity ratio

Not more twice the capital and free reserves Buy back of shares from -5

existing security holders Open market Odd lots Securities issued to employees - stock options or

sweat equity Only fully paid shares are to be purchased

Page 14: Alteration of Share Capital

Buy-Back of Securities

Transfer to capital redemption reserve account – 77 AA

Sanction by special resolution of General Meeting No sanction is required if the buy back is less than 10% Such buy back is authorized by the Board

Special resolution and explanatory statement Disclosure about the scheme of buyback in the general

meeting Filing of a copy of resolution with SE and RoC Methods of buy back

From existing share holders Open market – book building process or stock exchange Odd lots

No negotiated deals

Page 15: Alteration of Share Capital

Buy- Back of Securities

Declaration of solvency Board of directors resolution about solvency Filing with RoC and SEBI – Form 4 A Filing of affidavit No filing with SEBI – for unlisted company shares

Time Limit for completion of buy back Twelve months from date of resolution

Restriction on issue of new securities after buyback – upto six months -8 No further issue No private placement or right issue Bonus shares and conversion of securities are

permitted

Page 16: Alteration of Share Capital

Buy-back of Securities

Register of shares bought from the scheme Return of shares bought -10

With RoC, SEBI e- Form 4 C No filing for unlisted company

Destroying of the physical securities within seven days of last date of conclusion of buy back -7

Penalty for default of compliance – two years imprisonment or fine up to fifty thousand or both

Prohibition for buy back – 77 B Through any subsidiary Through any investment company No default in payment of deposits or redemptions No buy back of shares when the company has not filed

the annual returns, or paid the dividend or file the financial statements with RoC

Page 17: Alteration of Share Capital

Buy-Back of Securities

Process – Open market – tender offer Conducting the Board Meeting – information to SE – 7

days before meeting Special resolution and other approvals in the GM – File Resolution with RoC, SE and SEBI Public announcement and offer File offer letter and solvency certificate with SEBI with

fee and RoC – immediately – one day Dispatch of letters of offer Specified date - dates of offer and close Opening of escrow account and transfer money to

special account Finalize the list of the applicants – advertisement in news

paper Payments to applicants Destroy the physical securities File report with RoC – 110 days total

Page 18: Alteration of Share Capital

Buy-back of Securities

Through SE route Board meeting date and information to SE Board meeting – special resolution and other

approval Public announcement Filing papers with SEBI and RoC and SE Commencement of purchases Inform the particulars of purchase to SE Verify the securities and payments to

applicants Reporting to SEBI and SE Advertisements in national daily File report with RoC

Page 19: Alteration of Share Capital

Buy-Back of Securities

Buyback of securities by unlisted company From existing security holders on proportionate

basis From the employees of the company – Esops or

Sweat equity Board Meeting – Special Resolution Disclosures and explanatory statements Declaration of solvency Letter of offer to target and filing with RoC – Rule

6(1) Acceptance of offer and related procedures - R

6(2) Verification of offer application received – within

21 days – R 6 (3) Payment of consideration within 7 days – R 7(2) Compilation of other obligations – R 8

Page 20: Alteration of Share Capital

Buy-Back Securities

Buy Back should be completed within 12 months – 77A(4)

Filing of returns with RoC and SEBI – 77 A Extinguishment and destroy of physical

certificates –R 10 – within 7 days Furnish certificate to RoC duly signed by

the Two directors and Company Secretary – R 10

Register of Securities bought back