Share Capital

The owners primary invested shares in the company is what is known as the share capital of that company. The Companies Act defines ‘share’ as share in the capital of the company and according to sec. 6(b) every subscriber of the memorandum mist take at least one share. The summation is the product called share capital. In short, the fund raised by issue of shares is share capital.

It is entirely the business consideration that fixes the share capital of a company. But capital once raised must be maintained by the company and can not be returned to the shareholder. The articles of association should expressly state the share capital, types and distribution, consolidation, and include provisions of further issue, capitalization etc., without which a company cannot take steps on its own. In absence, the company must first go for alteration of the articles.

Classification of Share capital: The Share capital of a company may be classified under the following ways:

Authorized, registered or nominal capital-Any amount with which the company is proposed to be registered and which is set out in the Memorandum of Association, is known as registered or nominal capital of the company. Again, it is also named as the authorized capital since, the company is authorized to raise only that amount mentioned in the Memorandum by issue of shares.
Issued capital-The issued capital is that part of the company’s nominal capital that is offered to the public for subscription. However, it is not compulsory for a company to issue its whole nominal amount at a time; rather it may offer only a part of it and the remaining portion may be kept for future requirements.
Subscribed capital-When public take up or subscribe any part of the company’s issued capital, this part may be called as subscribed capital. In case of a company having good reputation, the whole of the issued capital may be subscribed; but in other cases, the subscribed capital may be less than the issued capital.
Called-up capital-Ordinarily, the companies do not call the full amount of shares at a time, it calls only that amount which is required for its business purpose. So, if any part of the issued capital is actually called up by the company, it is termed as the “called-up capital”.
Paid-up capital-Sometimes, it may happen that the company has called-up capital, but the shareholders fail to pay this up. So, when the shareholders actually pay any amount, that part is only said to be the ‘paid-up capital’.
Reserve capital-Section 74 provides that a limited company may, by special resolution, determine any portion of its share capital which has not been already called up, shall not be capable of being called up, except in the event or for the purpose of the company being wound up; and thereupon that portion of its share capital shall not be capable of being called up except in the event, and for the purposes aforesaid; and such portion shall be called reserved share capital.

Increase of share capital:

A company limited by shares may increase its authorized share capital. But to do this, changes in the Memorandum are required. At the same time, after making such alteration, it is required to be registered with the Registrar. Increase of share capital may be of two types-

Increase of share capital within the limit of authorized capital: Within the limit of the authorized capital mentioned in the Memorandum, if the directors intend to increase the subscribed capital, then they are required to pass a resolution. But in this case, provisions of sec. 155 are to be followed:

Offering the existing shareholders to purchase new shares: Where the directors decide to increase the subscribed capital of the company by issue of further shares, such further shares shall be offered to the members in proportion. [Sec. 155 (1) (a)] Such offer shall be made by a notice specifying the number of shares so offered and specifying the time limit which shall not be less than 15 days. If within this time this offer is not accepted, it shall be deemed to have declined. [Sec. 155 (1) (b)]
Disposal of the shares in case of non-acceptance: If the members, to whom the offer was made, do not respond or decline it, the directors may dispose of the shares in such manner as they think most beneficial to the company. [Sec. 155 (1) (c)]
Increasing share capital: When the proposal as to the increase of share capital is accepted at the board meeting by passing a resolution, a company may increase its share capital in the following ways as mentioned in sec. 53 (1):

it may increase the share capital by the issue of new shares;
it may consolidate and divide all or part of its share capital into the shares of larger amount;
it may convert all or any of its fully paid-up shares into stock and reconvert that stock into paid-up shares of any denomination.

Serving of notice: When a company increases its share capital, a notice is required to be served to the Registrar within 15 days of doing so. [Sec. 54 (1)]. If the company makes any default to serve the said notice, shall be liable to a fine not exceeding Tk 200 for everyday during which the default continues. This is also applicable to officers who are also responsible for the above-mentioned grounds. [Sec. 54 (2)]

Increasing the authorized capital: The authorized capital is generally mentioned in the Memorandum of the company. So, to increase such authorized capital, at first the necessary provision of the Memorandum is required to be amended. For this reason, the following procedures are to be followed:

Ordinary resolution required: The alteration in the capital clause can be effected by passing an ordinary resolution in the general meeting. The resolution to be passed by the majority of votes (more than 50%). In case of a poll, the provision of sch-I, Reg-61 needs to be followed.
Special resolution in some cases: Where the Memorandum of the company does not contain any specific provision as to the increase of the authorized capital, a special resolution to this effect is required to be passed with 21 days’ notice. In this case, the resolution to be passed by a majority of not less than three-fourths of such members entitled to vote as are present by person. [Sec. 87]**

Reduction of Capital:

company does not call the full value of shares at one time. The company keeps the uncalled portion of the share capital for the company’s creditors as their future security. Since it acts as the future security so, a company cannot reduce its share capital by buying its own share. Besides, there are some restrictions on the power of the company to forfeit shares or to accept surrender of shares which would amount to reduction of share capital. For this reason, attempts have been made in the Companies Act to conserve the share capital of the company.

Modes of reduction of capital [Sec. 59 (1)]: Though our Companies Act provides safeguards to conserve the share capital of the company, yet it is not forbidden totally to reduce its share capital. Maintaining some procedures a company can reduce its share capital in the following ways-

by extinguishing or reducing the liability on any of its share in respect of share capital not paid up;
by canceling any paid up share capital which is lost or unpresented by available assets;
C. by paying up off any paid up capital which is in excess of the wants of the company;
by any other ways approved by the court. [Sec. 59 (1)]

Procedure for reducing share capital: To reduce the share capital of the company, the following procedures are to be maintained-

Authorization of the Articles: Sec 59 (1) clearly says that a company limited by shares, if so authorized by its Articles, may by special resolution reduce its share capital. So, the authority to reduce the capital must be in the Articles and if the authority is on the Memorandum only, the company cannot reduce its share capital191
Special resolution: To reduce share capital, a special resolution, by the majority of three- fourths of the voting members, to be passed with 21 days prior notice. [Sec. 87]
Confirmation by court: To reduce share capital of the company, confirmation by the court is required to be sought. And the confirmation is a must to effect such reduction [Sec. 60] [Sec. 59 (1)]

Interest of creditors: While reducing the share capital, the interests of the creditors must be looked up. The creditors, to whom the company owes a debt which would have been payable in the event of winding up of the company, are entitled to object if they are aggrieved by such reduction which involves:

reduction of liability in respect of uncalled capital; or
payment to any shareholder of any paid up capital; and
in any other case, if the court so directs. [Sec. 62 (1)]

The court shall settle a list of creditors who are entitled to object and considering different other aspects, shall finalize the list. [Sec. 62 (2)]

Interest of the shareholder: The court also looks after the interest of the shareholders before confirming the order of reduction of capital. In this case, the court will see whether the reduction is fair and equitable to all kinds of shareholders.

Order confirming reduction: The court if satisfied with respect to every creditor of the company who under this Act is entitled to object to the reduction, that either consent to the reduction has been obtained or his debt or claim has been discharged or has been determined or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit. [Sec. 64]

i. Addition to name of company of “and reduced”: When the company passes any resolution for reducing share capital and gets court’s authorization to this effect, on and from the making of the order by the court confirming such reduction, the company shall add to its name- “and reduced” until such date as the court may fix. [Sec. 61] But where the reduction does not involve either the diminution of any liability in respect of any unpaid share capital, the court may dispense altogether with the addition of such words. When the court confirms the order of reduction of share capital, the

ii. Registration of order and minutes of reduction [Sec.65]: company is required to send the order of confirmation along with other necessary document to the Registrar for the purpose of registration. Then the Registrar shall register the following documents:

a. The certified copy of the order of confirmation by the court;

b. A copy of the minutes approved by the court which shall contain-

The amount of the reduced share capital;
The number of shares into which it is to be divided;
The nominal value of each such share;
The amount, if any, at the date of registration, deemed to be paid up on each such share.

iii. Serving of public notice: When the above mentioned documents are registered, a notice of such registration shall be published in such manner as the court may direct. [Sec. 65 (3)] Then the Register shall certify under his hand the registration of the order and minutes, and his certificate shall be conclusive evidence that all the requirements of this Act have been duly complied with. [Sec. 65 (4)]

iv. Change in Memorandum of Association: When the minutes are registered, they shall be deemed to be substituted for the corresponding part of the Memorandum of the company, and shall be valid and alterable as if it had originally contained therein. [Sec. 66 (1)]

Liability of members in respect of reduced shares [Sec. 67]: A post or present member shall not be liable in respect of any call or contribution exceeding in amount the difference, if any, between the amounts paid, or as the case may be, the reduced amount, which is to be deemed to have been paid, on the shares and the amount of the shares as fixed by the minute. But our Companies Act provides one case where the members may be held liable to pay the original nominal value of shares. This happens when a creditor is entitled to object to the reduction has been left out of the list of such creditors by reason of his ignorance of the proceeding, and the company is unable to pay the amount of his debt. In these circumstances, the court may order the members to pay up to the original nominal value of the shares held by them. [Sec. 67]

Penalty on concealment of name of credit: If any officer of the company willfully conceals the name of any creditor entitled to object to the reduction or willfully misrepresents the nature or amount of the debt or claim of any creditor, or if any officer of the company abets, any such concealment or misrepresentation as aforesaid every such officer shall have punishable with imprisonment which may extend to two years, or with fine, or with both. [Sec. 68]