Bachelor of Commerce

B.Com

Company Law-BCOM 402-18

Topic- Share Capital
 Learning Objectives
1. Alteration of Share Capital
2. Ways of raising share capital
3. Allotment of shares
4. Share Certificate and Share Warrant
Course Outcome:
With the changes taking place worldwide, there was a need to review and
modify the existing company laws and bring in new and improved laws
and regulations in corporate sector in India. It will lead to better
understanding of clauses of the companies

Previous Lecture:
1. Introduction to Share Capital
2. Types of Shares
3. Kinds of Share Capital
 Alteration of Share capital
• “Authorised capital” or “Nominal capital” means such
capital as is authorised by the memorandum of a company to
be the maximum amount of share capital of the company.
• Section 61 of the Companies Act, 2013- Power of Limited
Company to Alter its Share Capital
• “Power of Limited Company to Alter its Share Capital
• 61. (1) A limited company having a share capital may, if so
authorised by its articles, alter its memorandum in its
general meeting to—
• (a) increase its authorised share capital by such amount as it
thinks expedient;
• (b) consolidate and divide all or any of its share capital
into shares of a larger amount than its existing shares:
• *Provided that no consolidation and division which results
in changes in the voting percentage of shareholders shall
take effect unless it is approved by the Tribunal on an
application made in the prescribed manner;
• (c) convert all or any of its fully paid-up shares into stock,
and reconvert that stock into fully paid-up shares of any
denomination;
• (d) sub-divide its shares, or any of them, into shares of
smaller amount than is fixed by the memorandum, so,
however, that in the sub-division the proportion between
the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the
share from which the reduced share is derived;
• (e) cancel shares which, at the date of the passing of
the resolution in that behalf, have not been taken or
agreed to be taken by any person, and diminish the
amount of its share capital by the amount of the
shares so cancelled.
• (2) The cancellation of shares under sub-section (1)
shall not be deemed to be a reduction of share
capital.”
Procedure For Altering The Share
Capital
• 1. Sending Notice of Board Meeting; Notice of
Board Meeting to be sent to every director at least 7
days before the meeting, shorter notice is possible
subject to fulfilment of condition subject to which it
can be issued.
• 2. Board Meeting: Board Meeting will be called for
calling the general meeting. Board of Director will
fix the date, day, time and place of the general
meeting. Notice of general meeting to be
accompanied by an explanatory statement as per
section 102.
• 3. Notice of general meeting: At least 21 clear days’
notice to be given, however, shorter notice may be
given subject to compliance of the given condition.
Notice to be given as per section 101 and shall be
given to every director, auditor of the company,
members of the company. Notice shall provide the
date, day, time and place of the meeting and also
specify the business to be transacted. Since
alteration of capital is a special business so notice to
be accompanied by an explanatory statement.
• 4. General Meeting: In the general meeting, the
company will pass an ordinary resolution to alter
the share capital.
Reduction of Share Capital
• The Reduction of Share Capital means reduction of issued,
subscribed and paid up share capital of the company.
Previously, reduction of share capital was governed by section
100 to 104 of the Companies Act, 1956, now it is governed
by section 66 of the Companies Act, 2013. As per old act, it
was subjected to the confirmation of high court, but under new
Act, the said powers of high court has been transferred to
National Company Law Tribunal (NCLT).
• Buy back of shares and redemption of Preference Shares are
also reduction of share capital but governed by specific
provisions prescribed under Act. Such reductions in the form of
buy back and redemption do not require sanction/approval from
Tribunal (NCLT).
Need of Reduction of Share Capital
• Returning of surplus to shareholders;
• Eliminating losses, which may be preventing the payment of
dividends;
• As a part of scheme of compromise or arrangements;
• simplify capital structure;
• When the company is making losses, the financial position
does not present a true and fair view of the company. The
assets are overvalued and the balance sheet consists of
fictitious assets with debit balance in profit and loss account.
In order to reduction of capital will write-off that portion of
capital which is already lost and will make the balance sheet
look healthy.
Procedure for Reduction of Share Capital
> Convene a Board Meeting
• To approve the reduction of share capital;
• To fix the date of general meeting of the company to get
approval of members.
> Dispatch notice of general meeting to all the
shareholders at least before 21 days.
> Hold the general meeting and pass Special Resolution
approving reduction of share capital.
> If you have secured creditors, take NOC from them in
writing.
> File Special Resolution alongwith e-form MGT-14with
ROC within 30 days of passing.
• > Apply to NCLT by filing an application in Form RSC-1to
confirm reduction. The application shall be accompanied with
the following attachments:
• List of creditors
• Certificate of auditor to the effect that list of creditors is correct
• Certificate of auditor that Company is not having any arrears of
repayment of deposit and interest thereon;
• Certificate of auditor that Accounting Treatment proposed by
the company for reduction of share capital is in conformity
with the Accounting standards.
• Any other relevant documents.
The NCLT shall within 15 days of submission of the application
give a notice to SEBI in Form RSC-2and to every creditors of
the company in Form RSC-3.
• > The NCLT shall also give direction for the notice
to be published in Form RSC-4within 7 days of
such direction in a leading English and vernacular
language newspaper and for uploading on the
website of the company.
• > The company shall file an affidavit in Form RSC-
5confirming the dispatch and publication of the
notice within 7 days from the date of issue of such
notice.
• > The NCLT may dispense with the requirement of
giving notice to the creditors or publication of
notice, if every creditor has been discharged or
secured or given his consent in writing.
• Company shall send the representation or objections
so received along with responses of the company
thereto within 7 days of expiry of period upto which
objections were sought.
• > NCLT may hold any enquiry on adjudication of
claim and/or give direction for securing the debts of
the creditors.
• > The order confirming the reduction of share
capital shall be in Form RSC-6.
Methods of Raising Capital
• There are two types of capital that a company can use
to fund operations: debt and Equity
• Debt Capital
• Debt capital is also referred to as debt financing.
Funding by means of debt capital happens when a
company borrows money and agrees to pay it back to
the lender at a later date. The most common types of
debt capital companies use are loans and bonds, which
larger companies use to fuel their expansion plans or to
fund new projects. Smaller businesses may even use
credit cards to raise their own capital.
Methods of Raising Capital
• Equity Capital
• Equity capital, on the other hand, is generated not
by borrowing, but by selling shares of company
stock. If taking on more debt is not financially
viable, a company can raise capital by selling
additional shares. These can be either common
stock or preference shares.
Methods of Raising Capital

• A private company cannot raise capital by the public issue

of share. Only a public company can issue its shares and
debentures to the public and thereby mobilise the funds.
There are three methods of raising the share capital from
the public. They are
• By directly selling the shares to the public (i.e., Public Issue),
• By entering into an underwriting contract with the underwriters,
and By placing shares.
• The company, when it feels that the whole issue may not
be subscribed by the public it may either enter into an
agreement with the underwriters or place the shares, so as
to ensure the sale of the whole issue of the shares.
• Allotment of Shares
• Allotment of shares is an appropriation of a certain
number of shares to an applicant and distribution of
shares among those who have submitted
application. It is governed by companies act, 2013
and rules & regulations incorporated therein and for
Listed Companies) whose shares are listed at the
NSE and BSE or any other applicable Stock
exchanges in India and whose shares are freely
tradable without any restrictions) and Subsidiary of
Listed Companies the provisions of SEBI act, 1992
and the securities contracts (regulation) act, 1956,
are also applicable.
• MODE OF ALLOTMENT OF SHARES:
• A public company can allot its shares in the
following ways:
• to public through prospectus (public offer)
• through private placement
• through a rights issue or a bonus issue
• A private company may allot shares in the
following ways:
• through a rights issue or a bonus issue
• through private placement/ preferential
Allotment
• PUBLIC OFFER:
• An application is made to stock exchange(s) for the shares to be
dealt. Allotment of shares is in e-materialized form and the offer
for the allotment of shares is made through red herring/ shelf
prospectus, as the case may be. In public offer, no allotment is
made unless minimum amount stated in the prospectus has been
subscribed and consequently return of allotment is to be filed
with the registrar.
• PRIVATE PLACEMENT/ PREFERTIAL ALLOTMENT:
• A private placement offer letter is issued to such number of
persons not exceeding 50 but limited to 200 in a financial year
and the allotment of shares through private placement is to be
approved by the shareholders through a special resolution only.
A complete record of private placement offers is to be kept by
the company and is to be filed with the registrar and to SEBI (for
listed company).
• RIGHTS ISSUE:
• A letter of offer in the form of notice is issued to the existing equity
shareholders for the purpose of rights issue which provides with the
right of renunciation to the existing equity shareholders w.r.t. the offer
for the allotment of shares.
Accordingly, subscribed capital of the company is increased in rights
issue.
• BONUS ISSUE:
• Only fully paid-up bonus shares are issued to the members, out of:
• free reserves
• securities premium account; or
• capital redemption reserve account, maintained by the company in this
regard
• Bonus issue is to be authorized by the AOA of the company making the
allotment of bonus shares and it is recommended by the board and then
approved by the shareholders in the general meeting of the company.
Provisions of companies act relating
to issue and allotment of shares

• 1. A public company must file a prospectus or

statement in lieu of prospectus, inviting offers from
the public for the purchase of shares in the company.
• 2. After studying the prospectus, the public applies
for shares of the company in the printed prescribed
forms.
• 3. No allotment of shares can be made unless the
‘Minimum Subscription‘ as given in the
prospectus had been subscribed or applied for. 
• 4. The amount of share application money must
be deposited in a bank. It can be operated by the
company only after getting the certificate of
commencement
• 5. If the minimum subscription amount of 90% of
the issue was not achieved by the company within
60 days from the date of closure of the issue, the
company has to refund the entire subscription
amount immediately. For any delay beyond 78 days,
the company has to pay an interest of 6% per
annum.
SHARE CERTIFICATE
Owning shares means owning equity in a company. Typically,
a shareholder purchases a certain number of shares from a
company at a fixed rate on the grant date.  A share certificate,
also known as a stock certificate, is a documented proof of
shareholding in a company. It can be a physical document or an
electronic one, issued to a shareholder and signed on behalf of
the corporation. This certificate is legal proof of ownership of
a certain number of company shares. It certifies registered
share ownership of a certain number of shares from the grant
date and also acts as a receipt of share purchase. However, a
share certificate merely contains details of the shareholder
and the number of shares they own, it is not the stock itself.
• TIME PERIOD FOR ISSUE
OF SHARE CERTIFICATES:
• In case of Incorporation: With in a period of 2
(Two) Month from the date of Incorporation to the
subscriber of Memorandum.
• In case of Allotment: With in a period of 2 (Two)
Month from the date of allotment of shares.
• In case of Transfer: With in a period of 1 (One)
Month from the date of receipt of instrument of
Transfer by the Company
• REQUIREMENT FOR ISSUE OF SHARE CERTI
FICATE:
• A Company shall provide one certificate to a member
for all his shares without payment of any charges.
• If a Shareholder want more than one Certificate: If a
shareholder want more than one certificate for one or
more of shares than company may issue several
certificates, upon payment of Rs. 20/- each certificate
after the first.
• If Shares hold Jointly by several person: The
Company shall not be bound to issue more than one
certificate, and delivery of a certificate for a share to
one of several join holders shall be sufficient delivery
to all such holders.
• SHARE CERTIFICATE SHALL SPECIFY
FOLLOWINGS MATTER:
• Name of Member.
• Common Seal of the Company.
• Number of Shares it relates.
• The amount paid on those Shares.
• The Distinctive No. of Shares.
• The Number of Share Certificate.
• The Folio No. of Member.
• Name of Company, CIN of Company and
Registered Office Address of the Company.
 Share Warrant
• A Share Warrant is a document issued by the
company under its common seal, stating that its
bearer is entitled to the shares or stock specified
therein. Share warrants are negotiable instruments.
They are transferable by mere delivery without
registration of transfer.
• Conditions for issuing share warrants
• The following conditions should be satisfied for
issuing share warrants.
• 1. Only a public company can issue share warrants.
• 2. It must be authorized by the 
Articles of Association.
• 3. The shares must be fully paid-up.
• 4. The approval of the Central Government is
necessary.
• On the issue of the share warrant, the company
must strike off the name of the member in its
Register of Members and must enter the following
particulars:
• 1. The fact of the issue of the share warrant,
• 2. a statement of the shares specified in the
warrant distinguishing each shares by its number
• 3. the date of the issue of the warrant
 Share Certificate Share Warrant

A bearer of Share Certificate is entered Bearer of a Share warrant is not entered

in the Register of Members of the in the Register of Members of the
Company. Company.

A share Certificate requires certain It Can be easily transferred by mere

procedures and stamp duty for transfer. delivery

It takes time for such transfer Mere delivery entitles spot transaction

It is a kind of interest and ownership of

It is not a negotiable instrument
the company

No coupons shall be attached with Share

Coupons of dividend may be attached to
Certificate. Dividend may be declared
Share Warrant
separately if profit arise.
 SHARE CERTIFICATE SHARE WARRANT

All the companies limited by Only public limited companies

shares irrespective of public or have the right to issue share
private. warrant.

Issued against fully or partly paid Issued only against fully paid up
up share. shares

Prior Approval of Central Prior approval of Central

Government Not Required at all Government is required for
issuing Share Warrant.

Issued within 3 months of the No time limit prescribed.

allotment of shares.
 Summary
1. Alteration of Share Capital
2. Ways of raising share capital
3. Allotment of shares
4. Share Certificate and Share Warrant

Next Topic
1. Calls on Shares
2. Forfeiture and and surrender of shares
3. Transfer of Shares
4. Borrowing Power
5. Debentures and Charges
SOURCES
https://corpbiz.io
www.bbmantra .com
https://www.indialawoffices.coum
www.taxguru .in