Reclassification of Authorised Share Capital
Reclassification of Authorised Share Capital
Authorised Share Capital is the maximum amount of share capital that a company is allowed to issue to shareholders as specified in its Memorandum of Association.
What is Reclassification of Authorised Share Capital?
Reclassification of Authorised Share Capital means changing the composition of the types or classes of shares within the total authorised share capital without altering the total amount of authorised capital itself.
For example, a company may reclassify part of its authorised capital from equity shares to preference shares, or from ordinary shares to redeemable preference shares, etc.
Purpose of Reclassification
To adjust the share capital structure to suit the company's financing or strategic needs.
To facilitate raising capital by issuing different types of shares.
To meet regulatory or business requirements.
To attract different types of investors by offering varied rights and privileges attached to different classes of shares.
Key Points
Total authorised capital remains the same; only the composition changes.
Reclassification requires the approval of the company’s shareholders (usually through a special resolution).
The change must be filed with the Registrar of Companies (ROC) or relevant authority as per the company law.
It allows flexibility without increasing the overall authorised capital.
Example:
Suppose a company has authorised capital of ₹1,00,00,000 divided into 10,00,000 equity shares of ₹10 each.
The company decides to reclassify 3,00,000 equity shares into 3,00,000 preference shares.
Now, the authorised capital is still ₹1,00,00,000, but consists of:
7,00,000 equity shares @ ₹10 each = ₹70,00,000
3,00,000 preference shares @ ₹10 each = ₹30,00,000
Procedure
Board Meeting: Proposal to reclassify authorised capital.
Shareholders’ Approval: Passing a special resolution in a general meeting.
Filing with ROC: Filing the necessary forms (e.g., in India, Form SH-7 or others as applicable).
Update Memorandum of Association: Reflect the changed capital structure.
Issue of Share Certificates: Once reclassification is complete, shares can be issued as per the new classes.
Difference Between Reclassification and Alteration of Authorised Capital
Reclassification: Changes the composition of shares without changing the total authorised capital.
Alteration: Increases or decreases the total authorised capital amount.
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