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

Sundaram Textiles Ltd, an unlisted public company, has an authorised capital of Rs 50 lakh divided into equity shares of Rs 10 each. Its articles permit alteration of share capital, and the company passes the required resolution at a general meeting to split each equity share of Rs 10 into two shares of Rs 5 each. Which statement correctly describes the legal position?

Sub-division of Rs 10 shares into Rs 5 shares is a valid alteration of share capital if the articles authorise it and a general meeting approves it. It is not a reduction of capital, so Tribunal confirmation is not required, as the total capital remains unchanged.

  1. ASub-division is allowed only if the Tribunal confirms it, since it changes the face value of shares
  2. BSub-division is a valid alteration of share capital if authorised by articles and approved by a general meeting; it is not a reduction of capital and needs no Tribunal approvalCorrect
  3. CSub-division is treated as a reduction of capital and requires a special resolution plus Tribunal confirmation
  4. DSub-division is permitted only when the company is listed and SEBI has granted approval

Explanation

A company limited by shares, if authorised by its articles, may sub-divide its shares by passing a resolution in general meeting. This is an alteration of share capital, not a reduction, so Tribunal confirmation is not needed. The option calling it a reduction is wrong because total capital stays the same and only the face value per share changes.

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