Procedure for Sub-Division or Consolidation of Share Capital

Aakanksha Singhal

Aakanksha Singhal

Published on: May 9, 2022

Khushboo Sharma

Updated on: Nov 14, 2024

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Introduction:

Share capital attributes to the amount infused in the company to conduct its business operations. It may be altered or increased, divided into small shares of different classes, or consolidated in accordance with the provisions laid down in the Companies Act, 2013 and the rules made thereunder.

Applicable Provisions:

1. Section 15, 61, 62, 64 of Companies Act, 2013
2. Rule 5, 6 & 15 of the Companies (Share Capital and Debentures) Rules, 2014
3. Regulation 29, and 40 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
4. Rule 71 of NCLT Rules, 2016

Mandatory Requirements:

1. Authorization by the Articles of Association (AoA) of a company for any consolidation or sub-division of share capital.
2. Alteration of the Memorandum of Association (MoA) in general meeting for effecting such consolidation or sub-division of share capital.
3. Ensure that subsequent to the sub-division, the proportion between the amount paid and any unpaid amount on each reduced share shall be the same as it was in the case of the original share prior to the sub-division.
4. Issue fresh or renewed share certificate only upon receiving the surrender of the certificate in lieu of which it will be issued.
5. Maximum up to Rs. 50/- may be charged per certificate as a fee for issuance on splitting or consolidation of share certificate(s) or in replacement of share certificate(s) that are defaced, mutilated, torn or old, decrepit or worn out.

Procedure:

1. Alteration of AoA [As per Section 61(1)]:
   The first step is to ensure that the Articles of Association (AoA) of the company authenticates sub-division or consolidation of share capital and in the absence of relevant provisions to this effect, it shall be suitably modified as per the provisions of Section 14 of the Companies Act, 2013.
   Refer to the Procedure for Alteration of Articles of Association (AoA) for further details.
2. Intimation by Listed Companies to Stock Exchange (As per Regulation 29(1)(g) of LODR Regulations):
   Listed entity shall give prior intimation of at least 2 working days in advance, excluding the date of intimation and date of the meeting, to the Stock Exchange(s), for any alteration in the form or nature of any of its securities that are listed on the Stock Exchange or in the rights or privileges of holders thereof.
3. Convene a Meeting of the Board of Directors [As per section 173 & SS-1]:
   Please refer to the Procedure for Conducting Board Meeting of the Directors for further details.
4. Convene a General Meeting [Section 96, 100, and SS-2]:
   Please refer to the Procedure for Conducting General Meeting for further details.
5. File Form MGT-14 with ROC:
   The company shall file a copy of the Special Resolution with the Registrar of Companies (ROC) in form MGT-14 within 30 days of passing such resolution.
6. Application to NCLT [As Per Proviso to Section 61(1)(b) and Rule 71(1) & 71(2) of NCLT Rules, 2016]:
   • The company shall ensure to make an application filed in Form No. NCLT. 1 for obtaining the approval of the Tribunal in cases where any consolidation and division of all or any of the share capital into shares of a larger amount than its existing shares results in changes in the voting percentage of shareholders accompanied by the following documents:
     • Copies of memorandum and articles of association
     • Copies of audited balance sheets for the past 3 years
     • Resolution for allowing such consolidation or division and providing justification for the same
     • Documents in proof of new capital structure and class of shares being consolidated or divided
     • Affidavit verifying the petition
     • Bank draft evidencing payment of application fee
     • Memorandum of appearance with copy of the Board’s Resolution or the executed Vakalatnama, as the case may be
     • Two extra copies of the application
     • Any other relevant documents.
   • The application shall, inter alia, shall set forth the following:
     • Provision of articles authorizing such consolidation or division
     • Existing capital structure of the company
     • New capital structure of the company after the consolidation or division
     • Class of shares being consolidated or divided
     • The face value of shares pre and post-consolidation or division
     • Justification for such consolidation or division.
   • The company shall at least fourteen days before the hearing date ensure the following:
     • Advertise the petition in accordance with rule 35 of the NCLT Rules, 2016 and
     • Serve, by registered post with acknowledgment due, notice together with the application copy to the Central Government, Registrar of Companies, and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act.
7. Intimation to the Registrar [As Per Section 64(1) and Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014]:
   • Company is required to intimate the Registrar in case of any alteration in its share capital pursuant to the following events:
     • Alteration of share capital as per the provisions of section 61(1) of the Companies Act, 2013
     • In lieu of a government order passed for increasing the company’s authorized capital under section 62(4) or 62(6) of the Companies Act, 2013
     • Redemption of any redeemable preference shares
     • Company not having share capital increases the number of its members
   • Such intimation to the Registrar shall be given in Form No. SH. 7 within 30 days along with the stipulated fee and the following documents:
     • Certified true copy of the resolution for the alteration of capital is mandatory in case of an increase in share capital being independently done by the company
     • Copy of the central government’s order is mandatory in case of an increase in share capital is pursuant to the central Government order
     • Copy of the Tribunal’s order is mandatory in case of an increase in share capital with the Central Government
     • Certified true copy of board resolution authorizing redemption of redeemable preference shares which is mandatory in case of redemption of redeemable preference shares
     • Altered Memorandum of Association (MoA) is mandatory in case of an increase in share capital is independently or by the order of the Central Government or an increase in the number of members
     • Altered Articles of Association (AoA) is mandatory in case the same is altered
     • Workings for calculation of ratios (in case of conversion)
     • Any other optional attachment as may deem fit
8. Issue of Share Certificate [As Per Rule 5(2), Rule 5(3), Rule 6(1)(b), and Rule 6(2)(c) of the Companies (Share Capital and Debentures) Rules, 2014]:
   • Every share certificate shall be in Form No. SH.1 or as near thereto as possible specifying the name(s) of the person(s) in whose favor the certificate is issued, the shares to which it relates and the amount paid-up thereon
   • Every share certificate is to be signed by two directors or by a director and the company secretary, where the company has appointed a company secretary. And, in case the company has a common seal, the same shall be affixed in the presence of persons required to sign the certificate
   • “Issued in lieu of share certificate No….. sub-divided/replaced/on consolidation and also, no fee shall be payable pursuant to a scheme of arrangement sanctioned by the High Court or Central Government” shall be inscribed on the face of the share certificate, in case of share certificate being defaced, mutilated, torn or old, decrepit, worn out, or pages on the reverse for recording transfers have been duly utilized.
   Note: The company may replace all the existing certificates with new certificates upon sub-division or consolidation of shares or merger or demerger or any reconstitution without requiring old certificates to be surrendered subject to compliance with Rules 5(1)(a), 5(2) and 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.
9. Updating the Register of Renewed and Duplicate Share Certificates [As Per Section 15(1) and Rule 6(3)(a), 6(3)(b) and 6(3)(c) of the Companies (Share Capital and Debentures) Rules, 2014]:
   • The company shall enter the particulars of every share certificate issued as per the terms of Rule 6(1) & 6(2) of the Companies (Share Capital and Debentures) Rules, 2014, forthwith in Register of Renewed and Duplicate Share Certificates maintained in Form No. SH. 2 indicating:
     • Name(s) of the person(s) to whom the certificate is issued
     • Number and issue date of share certificate in lieu of which new certificate is issued
     • Requisite changes cited in the Register of Members by apt cross-references in the “Remarks” column
   • The company shall upkeep such register at its registered office or such other place as may deem fit and ensure that the same is preserved permanently in the custody of the company secretary or any other person duly authorized by the Board for the purpose
   • All entries recorded in the Register of Renewed and Duplicate Share Certificates shall be authenticated by the Company Secretary or such other person as recognized by the Board to affect the sealing and signing of share certificate as per provisions of Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014
   • Every Alteration made in the Memorandum of Association (MoA) or Articles of Association (AoA) of the company shall be noted in every copy of the memorandum or articles as the case may be.
10. Intimation to the Stock Exchange [As Per Regulation 40(9) & 40(10) of LODR Regulations]:
    • Listed entity shall ensure to produce a certificate from a practicing company secretary within 30 days from the end of the financial year through a share transfer agent and/or in house share transfer facility, certifying that all certificates have been issued within 30 days of the lodgment date for transfer/sub-division consolidation, renewal, exchange or endorsement of calls/allotment monies.
    • Such certificate is to be filed with the Stock exchange(s) simultaneously.