Page 275 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 5. to cancel shares which, at the date of the passing of the resolution in this behalf, have not
been taken or agreed to be taken by any person.
These five clauses are now explained.

1. Increase of authorised share capital. A company, limited by shares, if the articles 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 filing the notice, the company and
every officer of the company who is in default shall be punishable with fine up to ` 50 per
day during which the default continues (s.97).
2. Consolidation and sub-division of shares. Consolidation is the process of combining
shares of smaller denomination. For instance, 10 shares of ` 10 each are consolidated into
one share of ` 100.
3. Sub-division of shares: is just the opposite of consolidation, i.e., one share of ` 100 is
divided into 10 shares of ` 10 each. Once a resolution has been passed, a copy of the
resolution is required to be sent within thirty days to the Registrar.

4. 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. For 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 ` 17 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
filed 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.
5. 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 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 the share capital by the
amount of the shares so cancelled. This constitutes diminution of capital and should be
distinguished from reduction of capital which is discussed herein below.

11.4.3 Reduction of Capital

Sections 100-105 provide for the reduction of share capital. A company limited by shares, if so
authorised by its articles, may, by special resolution, which is to be confirmed by the Court
reduce its share capital:

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