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Change in Share Capital
Change in Share Capital refers to the process of increasing, reducing, or altering the structure of a company's authorized, issued, or paid-up share capital as governed by the Companies Act, 2013. This change can occur through allotment of new shares, buybacks, stock splits, or other means. Compliance with legal procedures and filings with the Ministry of Corporate Affairs (MCA) is mandatory for all changes in share capital.
Changes in share capital help companies meet operational or financial needs, attract investors, or restructure their equity base. Proper compliance ensures transparency, protects stakeholder interests, and avoids penalties.
Important
1. Facilitates Fundraising : Enables the company to raise additional capital for expansion or operations.
2. Investor Attraction : Allows the company to issue shares to investors or convert loans into equity.
3. Operational Flexibility : Adjusts share capital to suit business requirements.
4. Regulatory Requirement : Ensures compliance with the Companies Act for any share capital change.
5. Stakeholder Transparency : Keeps shareholders informed and safeguards their interests.
Applicability
1. Private Limited Companies : Changes in authorized or paid-up share capital require shareholder and board approval.
2. Public Limited Companies : Requires shareholder approval through special resolutions for significant changes.
3. Startups and SMEs : Often modify share capital during funding rounds.
Types of Changes in Share Capital
1. Increase in Authorized Share Capital : Expanding the limit of shares a company can issue.
2. Allotment of New Shares : Issuing new shares to investors or employees.
3. Reduction of Share Capital : Reducing paid-up share capital through buybacks or cancellation of shares.
4. Stock Split or Consolidation : Dividing or merging shares to adjust their face value.
5. Conversion of Shares : Converting equity shares to preference shares or vice versa.
6. Bonus Shares : Issuing additional shares to existing shareholders from reserves.
7. Rights Issue : Offering shares to existing shareholders at a predetermined price.
Key Compliance Requirements
1. Board Resolution : Approval from the Board of Directors for the proposed changes.
2. Shareholder Approval : Obtain approval through an Ordinary or Special Resolution in a general meeting.
3. Filing with the MCA : File necessary forms, such as Form SH-7 for increasing authorized share capital or Form PAS-3 for allotment of shares.
4. Amendment of Memorandum of Association (MOA) : Update the capital clause in the MOA after approval.
5. Intimation to ROC : Inform the Registrar of Companies (ROC) within the prescribed time.
6. Payment of Stamp Duty : Pay applicable stamp duty on increased share capital.
Documents Required
Features
Features & Benefits of Change in Share Capital
Multiple Change Options
Mandatory Filing
Stamp Duty Payment
Investor Friendly
Change in Share Capital
Transparency
Quick Filing Deadlines
Alignment with MOA
Penalty for Non-Compliance
Supports Fundraising
Comparison with Related Services
| Feature | Change in Share Capital | Allotment of Shares | Annual Return Filing |
|---|---|---|---|
| Objective | Alter share capital structure | Issue shares to investors | Report company operations |
| Regulatory Body | MCA | MCA | MCA |
| Filing Frequency | Event-based | Event-based | Annually |
| Forms Required | SH-7, PAS-3 | PAS-3 | MGT-7 |
| Penalty for Non-Compliance | High | High | High |
Frequently Asked Questions
What is authorized share capital?
Authorized share capital is the maximum amount of share capital a company can issue, as specified in its MOA.
What is the difference between authorized and paid-up share capital?
Authorized capital is the maximum limit, while paid-up capital is the actual amount invested by shareholders.
What forms are required for a change in share capital?
Form SH-7 for increasing authorized capital and Form PAS-3 for allotment of shares.
What are the penalties for late filing of SH-7 or PAS-3?
Companies may face monetary penalties ranging from ₹1,000 per day of delay.
Can a company reduce its share capital?
Yes, with approval from shareholders and the National Company Law Tribunal (NCLT).
Is stamp duty applicable on all share capital changes?
Stamp duty is applicable only on increases in authorized share capital, as per state laws.