Page 159 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes 2. to consolidate and divide all or any of its share capital into shares of larger amount than its
existing shares;
3. to convert all or any of its fully paid-up shares into stock and reconvert the stock into fully
paid-up shares of any denomination;

4. to sub-divide its shares, or any of them, into shares of smaller amount than fixed by the
memorandum, but the proportion paid and unpaid on each share must remain the same;
5. to 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.

These five clauses are now explained.
Increase of authorised share capital. A company, limited by shares, if the article authorise, can
increase its authorised share capital by passing an ordinary resolution.
Within 30 days of the passing of the resolution, a notice of increase in the share capital must

be filed with the Registrar. On receipt of the notice, the Registrar shall record the increase and
also make any alterations which may be necessary in the company’s memorandum or articles or
both.
If default is made in fi ling the notice, the company and every offi cer of the company who is in
default shall be punishable with fi ne upto ` 50 per day during which the default continues
(s.97).

Consolidation and sub-division of shares. Consolidation is the process of combining shares of
smaller denomination. For instance, 10 shares of ` 10 each may be consolidated into one share
of ` 100.

Sub-division of shares is just the opposite of consolidation, e.g., one share of ` 100 may be
divided into 10 shares of ` 0 each.
Once a resolution has been passed, a copy of the resolution is required to be sent within thirty
days to the Registrar of Companies.
Conversion of shares into stock and vice versa. Stock is simply a set of fully-paid up shares
put together and is transferable in any denomination or fraction. On the other hand, a share is
transferable as a whole; it cannot be split into parts.

Example: A share of ` 10 can be transferred as a whole; it cannot be transferred in parts.
But if 10 shares of ` 10 each fully paid are converted into stock of ` 100, then the stockholder can
transfer stock, say, worth ` 5 also.
Section 94 empowers a company to convert its fully paid-up shares into stock by passing a
resolution in general meeting, if its articles authorise such conversion. A notice is to be fi led
with the Registrar within thirty days of the passing of the resolution specifying the shares so
converted.
It is to be noted that stock cannot be issued in the first instance. It is necessary to first issue shares

and have them fully paid-up and then convert them into stock. Also, stock can be reconverted
into fully paid-up shares by passing a resolution in general meeting.

When shares are converted into stock, the shareholders are issued stock certificates. In the Register
of Members, the amount of stock is written against the name of a particular member in place of
number of shares. The stockholder is as much a member of the company as a shareholder.
Diminution of share capital. Sometimes, it so happens that shares are issued, but are not taken
up by the members of the public and, therefore, not allotted. Section 94 provides that a company
may, if its articles authorise, by resolution in general meeting, cancel shares which, at the date

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