Introduction -Alteration-of-Share-Capital.pptx

This presentation provides a detailed overview of the alteration of share capital, covering key concepts, legal provisions, and procedural aspects. It explains the different methods of altering share capital, including increase, reduction, consolidation, subdivision, and conversion of shares. Ideal for finance professionals, students, and business enthusiasts looking to understand corporate financial restructuring and compliance requirements.

1. ALTERATION OF SHARECAPITAL B.Parkavi Assistant Professor Department of B.Com CMA Sri Ramakrishna College of Arts & Science (Autonomous) Coimbatore - 641006

2. ALTERATION OF SHARECAPITAL When a company has been making losses for a number of years, the financial position does not present a true and fair view of the state of affairs of the company. In such a company, the assets are overvalued, the assets side of the balance sheet consists of fictitious assets, useless intangible assets, and debit balance in the profit and loss account. Such a situation does not depict a true picture of financial statements and shows a higher net worth than what the real net worth ought to be.

3. In short, the company is over-capitalized. Such a situation brings the need for reconstruction. In these situations, companies have three options: a) To liquidate the company (Liquidation) b) To reconstruct Externally (External Reconstruction) c) To reconstruct Internally (Internal Reconstruction)

4. Byju’s : Once valued at $22 billion in 2022, Byju's , India's leading edtech company, has faced a dramatic decline due to legal and financial challenges. The company is currently grappling with a $1.2 billion loan dispute and insolvency proceedings in India. Additionally, the Qatar Investment Authority is seeking to recover $200 million from Byju's founder, Byju Raveendran. Allegations of financial mismanagement and corporate governance failures have further exacerbated the company's troubles.

5. Meaning of Internal Reconstruction Internal Reconstruction is an arrangement made by companies whereby the claims of shareholders, debenture holders, creditors, and other liabilities are altered/reduced, so that the accumulated losses are written off, assets are valued at their fair value and the balance sheet shows the true and fair view of the financial position.

6. Case Study Reliance Industries Limited (2005) : Due to differences between the promoter-successors, Mukesh and Anil Ambani, Reliance Industries underwent a demerger in 2005. This restructuring led to the creation of separate entities, with Mukesh Ambani retaining control over the core businesses of RIL, including petrochemicals and textiles, while Anil Ambani took charge of sectors like power, communication, and financial services. This strategic split unlocked significant shareholder value, with the combined post-demerger share values surpassing pre-demerger levels.

7. Satyam Computer Services (2009) Following a major corporate fraud, Satyam faced a severe crisis threatening its existence. The Indian government intervened, appointing a new board to oversee restructuring. Through a public auction, Tech Mahindra acquired a 46% stake, leading to the formation of Mahindra Satyam. This internal restructuring preserved jobs and stabilized operations, culminating in a merger with Tech Mahindra in 2013

8. Schemes of Internal Reconstruction A company can reconstruct its internal affairs in the following ways: i. Reduction of Share Capital ii. Alteration of Share Capital iii. Variation of Shareholders' Rights iv. Compromise/Arrangement v. Surrender of Shares

9. Reduction of Share Capital Reduction of share capital is an arrangement under which the capital of the shareholders and sometimes even the claims of the creditors and debenture holders are reduced. The amount made available by way of capital reduction is utilized in writing off fictitious assets, accumulated losses, and the overvalued portion of other assets. A corporate sector unit can reduce its paid-up capital if: (a) It is authorized by its articles (b) A special resolution is passed (c) A sanction of the court is obtained

10. Journal Entries for Internal Reconstruction Equity Share Capital A/c Dr. (Old) To Capital Reduction A/c To Equity Share Capital A/c (New) (Being equity share capital reduced) Preference Share Capital A/c Dr. (Old) To Capital Reduction A/c To Preference Share Capital A/c (New) (Being preference share capital reduced) Debentures (or) Creditors A/c Dr. (Old) To Capital Reduction A/c To Debenture (or) Creditors A/c (New) (Being debentures (or) creditors reduced)

11. Capital Reduction A/c Dr. Sundry Assets A/c Dr. (Undervalued) To Profit and Loss A/c To Goodwill A/c To Preliminary Expenses A/c To Discount on Issue of Shares or Debentures A/c To Sundry Assets A/c (Overvalued) To Capital Reserves (B/F) (Being capital reduction amount utilized to write off the losses)