REDUCTION OF SHARE CAPITAL

Pankaj Malkani (Roll No. 61)

Manan K. Mehta (Roll No. 64)

What is reduction of Share Capital…? ? ?

Definition of 'Capital Reduction'The process of decreasing a company's shareholder equity

through share cancellations and share repurchases. The reduction of capital is done by companies for numerous

reasons including increasing shareholder value and producing a more efficient capital structure.

Explanation: 'Capital Reduction'After a capital reduction, the number of shares in the

company will decrease by the reduction amount. In some capital reductions, shareholders will receive a cash

payment for shares cancelled - but, in other situations, there is minimal impact on shareholders.

Reasons For Reduction In Share Capital

Returning surplus capital

Releasing a liability to pay up capital, thus reducing the

nominal value of the shares

Eliminating losses, which may be preventing the payment of

dividends

Insufficient distributable reserves

As part of a scheme of arrangement where there is a merger of

two large companies of similar size and

Distribution of assets to shareholders.

To simplify the capital structure

What does the procedure involve?

Passing a special resolution A statement of solvency duly signed by all the Directors A statement of capital which reflects the company’s share capital as

reduced Special resolution must be passed by the shareholders, supported by

a solvency statement in the prescribed form. Register with ROC

Copies of the solvency statement A memorandum setting out details of the share capital MOA The special resolution A statement by Director confirming that the solvency statement was made not

more than 15 days

The reduction takes effect on registration of the documents with the Registrar of Companies

CASE: COLGATE-PALMOLIVE (INDIA) LIMITED:-

Pursuant to the scheme of reduction of share capital u/s 100 of the Companies Act, 1956 as approved by the shareholders and Bombay High Court, the Company reduced the face value of its shares from Rs. 10 per share to Re. 1 per share effective Nov 1, 2007.

Consequently, the existing issued, subscribed and paid-up equity share capital of the Company stood reduced from Rs. 13,599 lakhs comprising of 13,59,92,817 equity shares of the face value of Rs. 10/- each fully paid-up to Rs.1,359 lakhs comprising of 13,59,92,817 equity shares of the face value of Re. 1/- each fully paid-up.  

PARTICULARS BEFORE(Rs. In lakhs)

AFTER(Rs. In lakhs)

Face Value Rs. 10 Face Value Re. 1

Share Capital (Equity Shares) 13,599.28 1359.93

LIABILITY OF MEMBERS & PENALTY

Liability of any member shall not exceed the difference between, amount paid on the share and the amount of the shares fixed by the scheme of reduction

If, any creditor is not entered in the list of creditors and the company is unable to pay his debt or claim then, every person who was member at the time of the registration of the order will be liable to contribute for the payment of the debt of the creditor.

If any officer of the company, who conceals the name of the creditor or misrepresents the nature of the debt or claim of the creditor, as per the provisions of section 105

DIFFERENCE BETWEEN:

REDUCTION OF SHARE CAPITAL

Cancellation of SUBSCRIBED CAPITAL or Paid-up capital

Special Resolution Confirmation &

approval required from court / tribunal [sec. 101]

AND REDUCED

DIMINUTION OF SHARE CAPITAL

Cancellation of UNSUBSCRIBED part

Ordinary Resolution No confirmation by

court / tribunal [sec. 94 (2)]

No alteration required

PRORMA

PETITION TO COURT / TRIBUNAL:

http://ciwtcltd.com/pdf/share_capital.pdf

BOARD RESOLUTION:

http://www.caclubindia.com/experts/-special-resolution-453230.asp#.UC493JacbIY

Bibliography

Book: Corporate Law by A. K. Majumdar & G. K.

Kapoor

Website Referrals http://www.asb-law.com/what-we-say/articl

es/articles/2010/reduction-of-share-capital#.UAP8uJEqDK4

http://www.thomaseggar.com/e-bulletin/reduction-of-capital

http://www.wirc-icai.org/material/ICAI%20291109%20-%20Case%20Studies%20on%20Buyback%20of%20shares.pdf

http://220.227.161.86/19850ipcc_blec_law_vol2_chapter6c.pdf

http://www.slideshare.net/casudhagbhushan/note-on-reduction-of-capital