conditions for alteration of share capital , types , buy back of shares and more... are clearly explained in this slide

1. ALTERATION OF SHARE CAPITAL

2. CONDITIONS FOR ALTERATION
•Company limited by shares
•Company limited by
guarantee having share
capital
•A/A must permit
•Ordinary resolution

3. TYPES OF ALTERATION
•Increase the share capital by issuing
new shares
•Consolidation of shares
•Conversion and reconversion of fully
paid up shares into stock and vice
versa
•Sub division of shares
•Cancellation of unissued share capital

4. PROVISIONS RELATING TO ALTERATION
• Capital clause to be altered; A/A should contain
provision for such alteration; otherwise first alter
A/A by passing a special resolution
• Alteration – Bona fide and in the interest of the
company
• Ordinary resolution is enough to alter capital
clause
• Notice of alteration to be given to the ROC (E-
form – 5) within 30 days – Penalty – Rs.500/day
of default

5. WHEN SHARE CAPITALAUTOMATICALLYSTANDS INCREASED?
•Central Government Order:
1. Loan taken from central
government converted into
shares in the company
2. Loan taken from PFI converted
into shares in the company

6. STOCK VS SHARES
•Only fully paid shares are converted in
stock
•Cannot be directly issued to the public
•Only through conversion
•No nominal value of shares
•No change in value for the investor
•Vice versa is possible

7. REDUCTION OF SHARE CAPITAL WITH THE ORDER OF
THE COURT
• Reduction of issued, subscribed and paid up capital
• A/A must permit
• Otherwise, first A/A must be amended
• Confirmation by the court
1. Convert Rs.100 paid up into Rs.75 paid up by not
calling the un called amount
2. Cancel any paid up share capital of the company
3. Reduce existing Rs.100 to Rs.75 by refunding Rs.25 per
share to the shareholder

8. REDUCTION OF SHARE CAPITAL WITH OUT THE ORDER
OF THE COURT
• (a) Surrender of shares (A/A must permit – Dispute)
• (b) Forfeiture of shares (A/A must permit and Board
resolution and in the bona fide interest of the company)
• © Diminution of capital: Cancellation of the unsubscribed
part of the capital – ordinary resolution – A/A must permit
• 1. Redemption of redeemable preference shares
• 2. Purchase of shares of a member by the company
• 3. Buy back of shares – Sec.77A

9. CREDITORS RIGHT TO OBJECT REDUCTION
•Has a right to object . . . . . . . . .
•Declaration of solvency
•File with the ROC
•File with the SEBI (Listed
companies only

10. CONFIRMATION AND REGISTRATION OF
REDUCTION OF CAPITAL
• The court – after satisfying creditors –
confirm reduction – “and reduced” –
specified period - company must publish
causes for reduction – to the public
• Court order to the ROC
• ROC will give a confirmation – Registration
takes effect.

11. COMPANY PROHIBITED TO BUY ITS
OWN SHARES – SEC. 77
•Till 1999

12. POWER OF COMPANY TO PURCHASE ITS OWN
SHARES – SEC.77A, 77AA & 77B [1999]
• The company can purchase its own shares out of:
• A. free reserves
• B. The securities premium account
• C. The proceeds of any shares (not from the earlier issue
of same kind of shares)
• The buy back can be in any one of the ways:
• 1. Purchasing from the existing share holder (Tender)
• 2. Purchasing from the open market (SE)
• 3. Purchasing from the odd-lots, even lots
• 4. Purchasing shares from employees (ESOP)
• NEGOTIATED BUY BACK TRANSACTION ARE BANNED

13. CONDITONS FOR BUY BACK
1. A/A must authorize
2. Spl. Resolution must be passed; not required in the
following cases:
• A. Less than 10% of paid up capital & reserves and
• B. Board resolution to that effect
• * provided no buy back in the next 12 months
3. Not more than 25% of paid up capital & reserves
4. Debt equity ratio: Not more than 2 : 1 (C.G. may
prescribe a higher ratio in specific cases)
5. Only fully paid shares can be bought back
6. Listed shares only according to SEBI regulations

14. OTHER PROVISIONS REG. B B
• AGM Notice should contain all particulars relating to B B
• B B operations should be completed within 12 months from
the date of Spl. Resolution / Bd. Resolution
• Declaration of solvency (Form No; 4A) – Affidavit – two
directors sign one of whom MD to be filed with the ROC &
SEBI in case of listed company otherwise only ROC
• After B B securities must be physically destroyed within 7
days from the last date of completion of buy back
• After B B, no further issue of shares for the next 6 months
except bonus shares
• E-Form 4C – ROC and SEBI – filed after completion of the B
B, unlisted company only ROC
• Separate Register to be maintained by the company relating
to B B

15. CONTD . . . . . .
• Contravention of any of the provisions – Fine –
Rs.50,000 and/or 2 years imprisonment
• Shares includes ESOP
• Shares bought back out of free reserves, an
equal amount must be transferred to the capital
redemption reserve and disclosed in the balance
sheet.
• For listed companies, SEBI has framed SEBI
(Buy-back of Securities) Regulations, 1998

16. PROHIBITON OF B B IN CERTAIN CASES
• SEC. 77B PREVENTS COMPANIES
PURCHASING THEIR OWN SHARES:
• (a) Through subsidiary company including
its own subsidiary companies or
• (b) Through any investment company or
group of investment companies or
• © Default – Dividend, interest, redemption,
repayment of loan, etc.