Skip to content

CMA Final · Corporate Financial Reporting · Internal Reconstruction (Capital Reduction)

Under section 61 of the Companies Act, 2013, a company authorised by its articles cancels unissued shares of Rs 5,00,000 and sub-divides its Rs 100 shares into Rs 10 shares. How is this treated under the Act?

Cancelling shares that no one has taken or agreed to take is not deemed a reduction of share capital under section 61(2), so the section 66 Tribunal procedure does not apply. Sub-division is allowed if the articles authorise it, keeping the same paid to unpaid proportion.

  1. ACancellation of unissued shares is deemed a reduction needing Tribunal confirmation under section 66
  2. BBoth cancellation and sub-division always need Tribunal approval
  3. CCancellation of shares not taken or agreed to be taken is not deemed a reduction of share capital, so section 66 procedure is not neededCorrect
  4. DSub-division is permitted only if the proportion of paid to unpaid amount is changed

Explanation

Section 61(2) says cancellation of shares not taken or agreed to be taken by any person under section 61(1) is not deemed a reduction of share capital, so no section 66 procedure is required. Sub-division under section 61(1)(d) must keep the same proportion of paid and unpaid amount, which makes the last option wrong.

Did you get it right without looking?

One question tells you little. A timed set on Internal Reconstruction (Capital Reduction) shows your real accuracy, how long you take and where you lose marks.

Practise Internal Reconstruction (Capital Reduction)Free diagnostic mock

More Internal Reconstruction (Capital Reduction) questions