As per section 61 of the Companies Act, 2013, a limited company having share capital may alter its capital clause of the memorandum of association in a general meeting. Memorandum of Association is charter or constitution of a company which specifies the powers of a company within which the company has to operate. If certain power is not specified in the memorandum of association of a company, the company can not exercise such power. In case, the company wants to exercise such power, it has to amend the memorandum of association so as to include such power.
Section 4(1)(e) of the Companies Act, 2013, stipulates that in case of a company having a share capital, the memorandum of association of such company would state, the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount. The relevant portion of section 4(1)(e) is reproduced below:-
“4(1) The Memorandum of a company shall state –
*** *** ***
(e) in the case of a company having a share capital, –
(i) the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share; and
*** *** ***”
Accordingly, capital clause specifies the upper limit within which a company is required to issue its shares. Capital clause can be altered by passing an ordinary resolution unless otherwise specified in the articles of the company. Alteration of capital clause results into alteration of memorandum of association of the company. Section 13 of the Companies Act, 2013 speaks about alteration of memorandum of association of a company. Alteration of capital clause attracts the provisions of section 13, section 61 and section 64 of the Companies Act, 2013 read with rule 15 of the Companies (Share Capital and Debenture) Rules, 2014. The relevant portion of these sections are reproduced below:-
Section 13(1) of the Companies Act, 2013 reads as below:
“13(1) Save as provided in section 61, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.”
Section 61(1) of the Companies Act, 2013 reads as below-
“(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.”
Section 64(1) of the Companies Act, 2013 reads as under-
“(1) Where-
(a) a company alters its share capital in any manner specified in sub-section (1) of section 61;
(b) an order made by the Government under sub-section (4) read with sub-section (6) of section 62 has the effect of increasing authorised capital of a company; or
(c) a company redeems any redeemable preference shares,
the company shall file a notice in the prescribed form with the Registrar within a period of thirty days of such alteration or increase or redemption, as the case may be, along with an altered memorandum.”
Procedure for alteration of the capital clause of memorandum of association of a company
1
Check whether articles of association of the company permits for alteration of capital clause in the memorandum of association. If not, then alter the articles of association
2
If articles of association permits alteration of capital clause then check whether it specifies for ordinary resolution or special resolution for alteration of the capital clause
3
If the existing articles of association contains a capital clause it should also be changed.
4
Issue not less than 7 days’ notice along with agenda and notes on agenda to every director of the company at his address registered with the company. A meeting of the Board may be called at shorter notice to transact urgent business subject to the fulfillment of the specified conditions.
5
Hold a board meeting
- To consider the alteration of the capital clause and to pass a resolution for the alteration of capital clause of the memorandum of association subject to the approval of the members of the company.
- To fix day, date, time and venue for holding a general meeting to obtain members’ approval.
- To approve the draft notice of the general meeting along with explanatory statement u/s 102 and authorize the company secretary or any director to sign and issue notice for the general meeting.
6
Issue notice calling general meeting along with the explanatory statement u/s 102 at least 21 clear days in advance of the general meeting to all the members, directors, auditors, debenture trustee, secretarial auditors of the company and any other person entitled to it.
An EOGM may be called after giving shorter notice, if consent, in writing or by electronic mode, is accorded thereto, by majority in number of members entitled to vote and who represent not less than 95%, of such part of the paid-up share capital of the company as gives a right to vote at the meeting.
7
Hold the general meeting and pass an ordinary resolution for alteration of capital clause of the memorandum of association. Pass a special resolution, if so, required by the articles of association of the company.
8
Pay the fees on the increased amount of authorised share capital. Pay the required stamp duty on increased amount of authorised share capital, wherever applicable.
9
File e Form SH-7 within a period of 30 days from the date of passing the resolution in the general meeting.
Attachment:
- Certified true copy of the ordinary/special resolution along with explanatory statement.
- Notice of the General Meeting
- Altered Memorandum of Association & Articles of Association
10
Where a special resolution is passed file e Form MGT- 14 within 30 days from the date of passing the special resolution in the general meeting.
Attachment:
- Certified true copy of the special resolution along with explanatory statement.
- Notice of the General Meeting
- Altered Memorandum of Association & Articles of Association
11
Every alteration made in the memorandum of association of a company shall be noted in every copy of the memorandum of association specifying the date and manner of passing the resolution.
In case of default, the company and every officer who is in default shall be liable to a penalty of Rs 1000/- for every copy of the memorandum of association issued without such alteration.
Also see General Meeting Resolution for Alteration of Capital Clause