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Unit 9: Share and Share Capital

3. Pay off paid-up capital on the understanding that it may be called up again, e.g., a share of Notes
10 is fully paid-up, on which 2.50 may be returned to the shareholder on the condition
that when necessary, the company may call it up again. Thus, the difference between
method (1) and this method is that the uncalled liability is not extinguished in the latter;
4. A combination of the preceding methods.

5. Write off or cancel capital which has been lost or is not represented by available assets,
e.g., a share of 10 fully paid-up is represented by 7.50 worth of assets. In such a situation,
reality can be re-introduced into the balance sheet of the company by writing off 2.50 per
share. This is the most common method of reduction of capital. The assets side of the
balance sheet may include useless assets, fictitious goodwill, preliminary expenses, discount
on issue of shares and debentures, etc. These assets are either cancelled or their values are
reduced to the extent they are useful. Correspondingly, share capital on the liability side
is reduced.

9.5.1 Procedure for Reduction of Capital

After passing the special resolution for the reduction of capital, the company has to apply to the
court by way of petition to confirm the resolution under s.101. The creditors are entitled to
object where the proposed reduction of share capital involves either: (i) the diminution of
liability in respect of unpaid capital; or (ii) the payment to any shareholder of any paid-up share
capital, or in any other case, if the court so directs.

To enable the creditors to object, the court selects a list of such people. If any creditor objects,
either his consent to the proposed reduction should be obtained or he should be paid off or his
payment secured. However, the court may dispense with the consent of a creditor on the company
securing payment of the debt or claim, by appropriating the full amount or that fixed by the
court.
Section 102 states that if the court is satisfied that either the creditors entitled to object have
consented to the reduction, or that their debts have been paid or secured, it may confirm the
reduction. It may also direct that the words “and reduced” be added to the company’s name for
a specified period and that the company must publish the reasons for the reduction and the
causes which led to it.
Section 103 provides for registration of the court’s order with the Registrar. The company has
also to send the minutes, giving details of the share capital as altered. The reduction of share
capital takes effect only on registration of the court’s order with the Registrar and not before.
The Registrar will issue a Certificate of Registration, which will be a conclusive evidence that,
both the requirements of the Act have been complied with and that the share capital is now as set
out in the minutes. The registered minutes are deemed to be substituted for the corresponding
capital clause in the memorandum, thereby altering the memorandum within the meaning of
s. 40. The copies of the memorandum which will be issued subsequently must, therefore, be in
accordance with the articles.
Section 104 provides that after the reduction of capital, the members cease to be liable for calls
as regards to the amount, by which the nominal amount of their shares has been reduced.
If, however, any creditor entitled to object to the reduction of share capital is not entered on the
list of creditors, then every member at the time of the registration of the court order and minutes
is liable to contribute for the payment of that debt.

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