Reduction in shared capital
Law and procedure to be followed by a company limited by shares for affecting a reduction in its share capital.
1. Introduction:
The capital of a company is generally divided into different categories. the word capital connotes the particular amount of money for which a business is commenced. share capital is an amount that is contributed by the shareholders.
2. Definition of share capital:
General definition:
It is the total amount of money that is subscribed by the shareholders for a company.
L. B Curzon:
Share capital is the total amount that a company's shareholder have contributed or are liable to contribute as payment of their shares.
3. Kinds of share capital:
Following are the various kinds of share capital.
I. Authorized or registered capital:
This is the maximum amount of capital that a company can issue. it is called authorized capital because the company has the authority to issue this much capital. it is also called registered capital.
II. Issued capital:
It is the part of authorized capital which offered for sale to the public in the form of shares.
III. Un-issued capital:
The amount of authorized capital that is not offered to the public in the form of shares.
IV. Paid-up capital:
The paid-up capital is the amount of capital that has been paid by the shareholders on the application of each share.
V. Called up capital:
The amount on which the shares are demanded by the company to be paid is known as called-up capital.
VI. Reserve capital:
The capital which is reserved for unexpected events is known as reserve capital.
VII. Un-called-up capital:
The amount of capital that has not been yet called up by the company.
4. Meaning of reduction of share capital:
Reduction of share capital means reducing the paid-up capital of the company.
5. Conditions:
The conditions for the reduction of share capital are as under.
I. Provisions in articles:
The powers to reduce the capital must be given by the articles of association.
II. Special resolution:
A special resolution must be passed by the company to reduce the share capital of the company.
III. Confirmation:
The reduction of share capital must be confirmed by the court.
6. Procedure for reduction of share capital:
I. Passing a special resolution:
Reduction in capital is possible only by passing a special resolution.
II. Petition by company:
The company has to make the petition for the confirmation of a reduction in share capital.
III. Public notice:
Court after receiving the petition issues public notice.
IV. Hearing:
The court hears the objections of the creditors.
Right of objection is limited:
The creditors have a right to object only if the reduction is involved.
- (a) Liability in respect of unpaid shares.
- (b) Payment to any shareholder of any paid-up capital.
- (c) In any other case, if the court so directs.
V. Order of Confirmation:
After hearing the case, the court may confirm the reduction on such terms and conditions as it may think fit.
VI. Filing of an order of reduction:
If the resolution is confirmed by the court, a certified copy of the court's order and the minutes of the resolution must be filed with the registrar.
VII. Issuance of certificate:
The registrar issues a certificate which is conclusive evidence of the requirements of the ordinance having been complied with.
7. Modes of reducing share capital:
Following are the modes of reducing the share capital.
I. Reduction of liability for unpaid capital:
A reduction of the liability of shareholders for unpaid capital is unusually effected by reducing the nominal value of their shares.
II. Return of capital to shareholder:
A company may return paid-up capital which is more than its wants when it has sold a part of its asset and intends to confine its future activities to running the remaining part of its business.
III. Cancellation of capital:
A company may cancel any capital that is lost or unrepresented by available assets.
8. Effect of reduction on the company name:
In case of reduction of share capital, the company should add the words "and reduced" to its name from the date of resolution until may be fixed by the court. in other cases, these words should be added on and from the date of the order of the court confirming the reduction unless the court thinks fit to dispense with it altogether.
Object:
Its object is to give notice to outsiders that the financial position of the company is not in a flowing condition.
9. Conclusion:
To conclude I can say that, share capital is the total amount of money which is the total amount of money which is subscribed by the shareholders for the company. the power to alter and how the alternation is made is generally given by the company's articles of association. reduction of the share capital is confirmed by the court.