Reduction of share capital

1. REDUCTION OF SHARE CAPITAL Pankaj Malkani (Roll No. 61) Manan K. Mehta (Roll No. 64)

2. What is reduction of Share Capital…? ? ? Definition of 'Capital Reduction' The process of decreasing a company's shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure. Explanation: 'Capital Reduction' After a capital reduction, the number of shares in the company will decrease by the reduction amount. In some capital reductions, shareholders will receive a cash payment for shares cancelled - but, in other situations, there is minimal impact on shareholders.

3. Reasons For Reduction In Share Capital Returning surplus capital Releasing a liability to pay up capital, thus reducing the nominal value of the shares Eliminating losses, which may be preventing the payment of dividends Insufficient distributable reserves As part of a scheme of arrangement where there is a merger of two large companies of similar size and Distribution of assets to shareholders. To simplify the capital structure

4. What does the procedure involve? Passing a special resolution A statement of solvency duly signed by all the Directors A statement of capital which reflects the company’s share capital as reduced Special resolution must be passed by the shareholders, supported by a solvency statement in the prescribed form. Register with ROC Copies of the solvency statement A memorandum setting out details of the share capital MOA The special resolution A statement by Director confirming that the solvency statement was made not more than 15 days The reduction takes effect on registration of the documents with the Registrar of Companies

5. CASE: COLGATE-PALMOLIVE (INDIA) LIMITED:- Pursuant to the scheme of reduction of share capital u/s 100 of the Companies Act, 1956 as approved by the shareholders and Bombay High Court, the Company reduced the face value of its shares from Rs. 10 per share to Re. 1 per share effective Nov 1, 2007. Consequently, the existing issued, subscribed and paid-up equity share capital of the Company stood reduced from Rs. 13,599 lakhs comprising of 13,59,92,817 equity shares of the face value of Rs. 10/- each fully paid-up to Rs.1,359 lakhs comprising of 13,59,92,817 equity shares of the face value of Re. 1/- each fully paid-up.  

6. PARTICULARS BEFORE (Rs. In lakhs) AFTER (Rs. In lakhs) Face Value Rs. 10 Face Value Re. 1 Share Capital (Equity Shares) 13,599.28 1359.93

7. LIABILITY OF MEMBERS & PENALTY Liability of any member shall not exceed the difference between, amount paid on the share and the amount of the shares fixed by the scheme of reduction If, any creditor is not entered in the list of creditors and the company is unable to pay his debt or claim then, every person who was member at the time of the registration of the order will be liable to contribute for the payment of the debt of the creditor. If any officer of the company, who conceals the name of the creditor or misrepresents the nature of the debt or claim of the creditor, as per the provisions of section 105

8. DIFFERENCE BETWEEN: Reduction OF SHARE CAPITAL Cancellation of SUBSCRIBED CAPITAL or Paid-up capital Special Resolution Confirmation & approval required from court / tribunal [sec. 101] AND REDUCED DIMINUTION OF SHARE CAPITAL Cancellation of UNSUBSCRIBED part Ordinary Resolution No confirmation by court / tribunal [sec. 94 (2)] No alteration required

9. PRORMA PETITION TO COURT / TRIBUNAL: http://ciwtcltd.com/pdf/share_capital.pdf BOARD RESOLUTION: http://www.caclubindia.com/experts/-special-resolution-453230.asp#.UC493JacbIY

10. Bibliography Book: Corporate Law by A. K. Majumdar & G. K. Kapoor Website Referrals http://www.asb-law.com/what-we-say/articles/articles/2010/reduction-of-share-capital#.UAP8uJEqDK4 http://www.thomaseggar.com/e-bulletin/reduction-of-capital http://www.wirc-icai.org/material/ICAI%20291109%20-%20Case%20Studies%20on%20Buyback%20of%20shares.pdf http://220.227.161.86/19850ipcc_blec_law_vol2_chapter6c.pdf http://www.slideshare.net/casudhagbhushan/note-on-reduction-of-capital