Alteration of Share Capital under Section 61

Understand Alteration of Share Capital under Section 61

Key rules to remember

Power and condition

Limited company + share capital + authorised by articles + general meeting → alter memorandum

Check the articles first. If they do not authorise, alter the articles before using Section 61.

Five alterations under Section 61(1)

(a) Increase authorised capital; (b) Consolidate and divide into larger shares; (c) Convert into stock and reconvert; (d) Sub-divide into smaller shares; (e) Cancel unissued shares

Remember the order a to e. Examiners often ask you to list or explain them.

Consolidation proviso

Consolidation and division that changes voting percentage of shareholders → needs Tribunal approval, on an application made in the prescribed manner, before it takes effect

This is the only Tribunal approval mentioned in Section 61(1). It is given by the Tribunal on an application made in the prescribed manner. Section 61(1) does not require Tribunal approval for the other alterations.

Sub-division rule

Paid-up ÷ unpaid proportion on each new share = same as on the original share

Example: ₹100 share with ₹60 paid and ₹40 unpaid, split into 10 shares of ₹10, gives ₹6 paid and ₹4 unpaid on each.

Stock conversion

Only fully paid-up shares can be converted into stock

Stock can be reconverted into fully paid-up shares of any denomination.

Cancellation is not reduction

Cancellation of unissued shares under Section 61(1)(e) ≠ reduction of share capital

Section 61(2) says so. Hence no Tribunal confirmation under Section 66 is needed.

Filing under Section 64

Notice in prescribed form to Registrar within 30 days of alteration, with altered memorandum

Penalty for default: ₹500 per day, capped at ₹5,00,000 for the company and ₹1,00,000 for each officer in default.

How to solve Alteration of Share Capital under Section 61 questions

1. 1Identify which of the five alterations the facts describe: increase, consolidation, stock conversion, sub-division or cancellation.
2. 2State the power: Section 61(1) allows a limited company having share capital to alter its memorandum in general meeting, if authorised by its articles.
3. 3Check the articles. If they do not authorise the alteration, say the company must first alter its articles.
4. 4Apply the specific condition: Tribunal approval if consolidation changes voting percentages; fully paid-up shares only for stock; same paid-to-unpaid ratio for sub-division; only untaken shares for cancellation.
5. 5Do the arithmetic if numbers are given, and check that total capital and each member's holding are consistent.
6. 6State the filing: notice in prescribed form to the Registrar within 30 days with the altered memorandum under Section 64, and the penalty if late.
7. 7Write a clear conclusion that answers the question asked.

Quickest way: Five-word recall: I C C S C

Common mistakes in Alteration of Share Capital under Section 61

• Saying Tribunal approval is needed for every alteration.

  Students mix Section 61 with Section 66 on reduction.

  Fix: Tribunal approval under Section 61 is needed only where consolidation and division changes the voting percentage of shareholders. Reduction under Section 66 needs Tribunal confirmation.

• Treating cancellation of unissued shares as a reduction of capital.

  Both reduce the capital figure.

  Fix: Section 61(2) says cancellation under Section 61(1) is not a reduction. It applies only to shares not taken or agreed to be taken by anyone.

• Forgetting that the articles must authorise the alteration.

  Students focus on the general meeting and skip the opening condition.

  Fix: Always begin with: if so authorised by its articles. If not, alter the articles first.

• Changing the paid-up ratio on sub-division.

  Students divide only the nominal value and ignore the unpaid amount.

  Fix: Divide both paid and unpaid amounts in the same proportion. A ₹10 share with ₹7 paid and ₹3 unpaid, split into two, gives two shares of ₹5 each. Each new ₹5 share has ₹3.50 paid and ₹1.50 unpaid, so the 7:3 ratio is preserved.

• Confusing consolidation with sub-division.

  Both change the face value and look similar.

  Fix: Consolidation makes shares larger (fewer shares). Sub-division makes shares smaller (more shares).

• Missing or misstating the filing period.

  Students recall a 30-day rule but forget it covers all Section 61 alterations.

  Fix: Write: notice with the Registrar within 30 days of the alteration, with the altered memorandum, under Section 64.

Worked examples