Reduction in Authorised Share Capital Procedure

Introduction

As prescribed under section 66 of the Companies Act 2013, A company limited by shares or limited by guarantee and having a share capital by a special resolution may do the reduction of share capital in any manner subjected to confirmation by the NCLT on an application by the company. It can reduce in particular, may—

  • In respect of the share capital not paid-up, extinguish or reduce the liability on any of its shares; or
  • Either with or without extinguish or reduction in liability on any of its shares,—

(i) Cancel any paid-up share capital that has been lost or is unrepresented by available assets,—

(ii) Pay off any paid-up share capital that has been exceeding of the wants of the company,

It can alter its memorandum by reducing the amount of its share capital and of its shares accordingly.

The procedure of reduction of share capital 

A company who wants to reduce its share capital requires to take the following procedural steps:

  • Make sure that articles of association contain a provision that should authorize the reduction of share capital. If there is no such kind of provision then the articles must be altered in accordance with the provisions of section 14 of the Companies Act 2013
  • Convene and conduct a board meeting to —

a. The resolution shall approve the scheme of reduction of share capital,

b. The time, date and venue should be fixed for holding a General Meeting of the company for passing a special resolution for reduction of share capital subject to confirmation by National Company Law Tribunal as per provisions of section 66 of the Act. The alteration of a capital clause in the Memorandum of Association of the company should also be passed as a consequence of the reduction of the share capital of a company.

c. The notice, agenda and explanatory statement should be approved to be annexed to the notice of the general meeting as per section 102 of the act.

d. Authorize the company secretary or some other competent officer to issue a notice of the general meeting as approved by the board.

  • As soon as the conclusion of the board meeting came, send it to the stock exchange where the securities of the company are listed.
  • A notice should be issued for the General Meeting to all members, directors, and auditors of the company. Besides, the copies of the notice of the general meeting to the stock exchange where the securities of the companies are listed.
  • Have the resolution passed and hold the general meeting.
  • A copy of the proceedings of the general meeting should be forwarded to the concerned stock exchange as per the Listing Agreement.
  • The certificate of a true copy of the special resolution should be attached while filing MGT-14, a copy of the explanatory statement under section 102 and copy of altered Memorandum of Association and Articles of association with the ROC within 30 days of the passing of the resolutions along with the prescribed filing fee its registration under section 117 of the act.
  • Should apply to National Company Law Tribunal for confirmation of the capital reduction by way of a petition in Form No. RSC-1 of the NCLT (procedure for Reduction of the share capital of the company) Rules 2016 (notified on 15th December 2016).
  • A petition should be there to confirm a reduction of share capital whether it is accompanied along with following documents or not. Required fee is Rs. 5,000—

1. The list of creditors certified by the managing director.

2. A certificate from the auditor of the company to the effect that the list of creditors.

3. A certificate from the auditor and director of the company that the company has not defaulted in repayment of deposits as well as in interest.

4. A certificate from the Statutory Auditor to the effect that all the accounting treatment has been in conformity to the Accounting Standards.

5. The memorandum and articles of association of the company.

6. A certified true copy of the notice of the general meeting.

7. A certified true copy of the special resolution authorizing the reduction of share capital.

8. A certified true copy of the latest audited balance sheet and profit and loss account of the company.

9. A certified true copy of the minutes of proceedings at the general meeting at which the special resolution for reduction of share capital was passed.

10. An affidavit verifying the petition.

11. Memorandum of Appearance with the copy of board resolution.

12. Bank Draft of Rs. 5,000 evidencing the payment of fees.

13. Other requisite attachment

  • A notice will be given by the National Company Law Tribunal to the Central Government, Registrar of companies and SEBI within 15 days from the filing the petition.
  • A notice in the Form RSC-3 shall be sent to each creditor within the period of seven days.
  • Need to publish the notice in Form RSC-4 within 7 days from the directions of NCLT.
  • The company or the person shall file an affidavit in the Form RSC-5 confirming the despatch and publication of the notice.
  • All the concerned parties will make their own representations within the period of three months from the date of receipt of a notice.
  • The company must submit the NCLT within the period of seven days of the expiry of time up to which the representations have been sought.
  • When the NCLT at the hearing petition may think fit gives such directions as may deem fit and issue its order.
  • Within 30 days from the date of Order, file the order of the NCLT with Registrar of companies in Form No. INC-28.
  • Issue fresh share certificate or contact with RTA and share transfer agent.
  • All the steps in accordance with the scheme of reduction of share capital of the company.
  • The company has a compulsion to send to the concerned stock exchange when the listed company three copies of all the notices published in newspapers by the company in connection with the reduction of the share capital of the company.

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By |2018-10-26T04:57:33+00:00September 10th, 2018|Categories: Others|Tags: , , |Comments Off on Reduction in Authorised Share Capital Procedure

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Himanshu Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Himanshu is a CFA (US) & MBA (ISB). He has over 8+ years of corporate / consulting experience with top firms like McKinsey