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

Sunrise Foods Ltd has an authorised capital of Rs 50 lakh. The company wants to alter its capital clause and carry out these changes: (i) consolidate shares of Rs 10 into shares of Rs 100; (ii) cancel unissued shares of Rs 5 lakh. Which statement is correct?

Both consolidation of shares into larger denominations and cancellation of unissued shares are alterations of share capital, not reduction. A company may do them in general meeting if its articles authorise it, without NCLT approval, and must give notice to the Registrar within thirty days.

  1. ABoth changes need an order of the National Company Law Tribunal
  2. BBoth changes can be made by the company in general meeting if authorised by its articles, and the company must file notice with the Registrar within 30 daysCorrect
  3. CConsolidation needs Tribunal confirmation, but cancellation of unissued shares does not
  4. DNeither change is permitted, since authorised capital cannot be reduced or consolidated

Explanation

A company limited by shares, if authorised by its articles, may alter its memorandum in general meeting to consolidate and divide share capital into shares of larger amounts, and to cancel shares not taken or agreed to be taken by any person (this is diminution of capital, not reduction). Neither needs Tribunal approval. Notice must be filed with the Registrar within 30 days.

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