by Share capital is the total amount of capital raised by a company through the issuance of shares. It represents the funds that the company can use for its business operations and investments.
There are two types of share capital:
- Authorized Share Capital: It is the maximum amount of share capital that a company is authorized to issue as per its Memorandum of Association (MOA).
- Issued Share Capital: It is the portion of authorized share capital that a company has issued to its shareholders.
The issued share capital can be further classified into:
- Subscribed Share Capital: It is the portion of issued share capital that is subscribed by the shareholders.
- Called-up Share Capital: It is the portion of subscribed share capital that the company has called upon its shareholders to pay.
- Paid-up Share Capital: It is the portion of called-up share capital that the shareholders have paid to the company.
Alteration in Share capital
Alteration in share capital refers to the changes made in the share capital structure of a company. It can involve various actions such as increasing or decreasing the authorized share capital, issuing new shares, consolidating or subdividing shares, converting shares into a different class, or cancelling unissued shares.
Alteration in share capital can be done for various reasons such as to raise additional funds, to adjust the capital structure of the company, to finance mergers and acquisitions, or to optimize the utilization of capital. Any alteration in share capital requires compliance with legal and regulatory requirements and approval from the shareholders and relevant authorities.
Alteration in Share capital meaning objectives
The objectives of alteration in share capital can vary depending on the specific needs and circumstances of a company. However, some of the common objectives of alteration in share capital are:
- Raising additional capital: One of the primary objectives of altering share capital is to raise additional funds for the company’s business operations, expansion, or acquisitions.
- Optimizing capital structure: Alteration in share capital can be done to adjust the capital structure of the company, such as converting debt into equity or vice versa, to optimize the use of capital.
- Facilitating mergers and acquisitions: Alteration in share capital can also be done to facilitate mergers and acquisitions by creating new share classes or consolidating shares.
- Meeting regulatory requirements: Alteration in share capital can be done to comply with legal and regulatory requirements, such as increasing the authorized share capital to accommodate future growth.
- Adjusting shareholder rights: Alteration in share capital can be done to adjust the rights and privileges of existing shareholders, such as creating new share classes with different voting or dividend rights.
Types
There are several types of alterations in share capital that a company can undertake:
- Increase in authorized share capital: A company may increase the authorized share capital to raise additional funds for business expansion or other purposes. The increase can be done by passing a special resolution and filing the necessary documents with the Registrar of Companies.
- Issue of new shares: A company may issue new shares to raise additional capital or to finance mergers and acquisitions. The issue of new shares requires compliance with legal and regulatory requirements, including shareholder approval.
- Consolidation of shares: Consolidation involves reducing the number of outstanding shares and increasing the value of each share. This is done to improve the company’s share price and make the shares more attractive to investors.
- Subdivision of shares: Subdivision involves increasing the number of outstanding shares and reducing the value of each share. This is done to improve the liquidity of the shares and make them more affordable for investors.
- Conversion of shares: A company may convert one class of shares into another, such as converting preference shares into equity shares or vice versa.
- Buyback of shares: Buyback involves repurchasing the company’s own shares from the market. This is done to return surplus funds to shareholders or to reduce the number of outstanding shares.
- Reduction in share capital: A company may reduce its share capital by canceling shares, reducing the nominal value of shares, or repaying capital to shareholders. Reduction in share capital requires compliance with legal and regulatory requirements and shareholder approval.
- Reorganization of share capital: Reorganization involves restructuring the company’s share capital, such as by creating new share classes, merging shares, or converting debt into equity. This is done to optimize the use of capital and improve the company’s financial structure.
Reasons of Alteration in Share capital
- To raise additional capital: A company may increase its authorized share capital to raise funds for business expansion, capital investments, or other purposes.
- To finance mergers and acquisitions: A company may issue new shares or convert one class of shares into another to finance mergers and acquisitions.
- To improve the company’s share price: Consolidation involves reducing the number of outstanding shares and increasing the value of each share. This is done to improve the company’s share price and make the shares more attractive to investors.
- To improve the liquidity of the shares: Subdivision involves increasing the number of outstanding shares and reducing the value of each share. This is done to improve the liquidity of the shares and make them more affordable for investors.
- To optimize the use of capital: Reorganization of share capital involves restructuring the company’s share capital, such as by creating new share classes, merging shares, or converting debt into equity. This is done to optimize the use of capital and improve the company’s financial structure.
- To return surplus funds to shareholders: A company may buy back its own shares to return surplus funds to shareholders or to reduce the number of outstanding shares.
- To repay capital to shareholders: A company may reduce its share capital by repaying capital to shareholders.
- To simplify the capital structure: A company may alter its share capital to simplify the capital structure, such as by consolidating or subdividing shares or by converting one class of shares into another.
