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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Anand Pharma Ltd has equity shares of Rs 10 each, fully paid. Its articles permit alteration of share capital. By an ordinary resolution passed in general meeting, it wants to sub-divide each share into two shares of Rs 5 each, and to cancel 20,000 unissued shares. Which statement is correct?

Both actions are valid through an ordinary resolution, as the articles permit alteration. Sub-division of shares and cancellation of unissued shares are alterations of share capital, not reduction, so Tribunal approval is not needed. The company must file notice with the Registrar in Form SH-7 within thirty days.

  1. ANeither action is allowed without approval of the Tribunal
  2. BBoth actions are allowed by an ordinary resolution, with notice to the Registrar in Form SH-7 within 30 daysCorrect
  3. CSub-division needs a special resolution, cancellation of unissued shares needs Tribunal approval
  4. DBoth need a special resolution and approval of the creditors

Explanation

If authorised by its articles, a limited company may alter its memorandum to sub-divide shares and cancel unissued shares not taken by any person, by ordinary resolution. Such cancellation is not a reduction of capital. Notice goes to the Registrar in Form SH-7 within 30 days. Options A, C and D wrongly require Tribunal or special resolution.

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