Section 94 provides that, if the articles authorise, a
company limited by share capital may ,by an ordinary resolution passed in
general meeting, alter the conditions of its memorandum in regard to capital so
as:
(1) to
increase its authorised share capital by such amount as it thinks expedient by
issuing fresh shares;
(2) to
consolidate and divide all or any of its share capital into shares of larger amount
than its existing shares;
(3) to
covert all or any of its fully paid-up shares into stock and reconvert the stock
into fully paid-up shares of any denomination;
(4) to
sub-divide its shares, or any of them, into shares of smaller amount than fixed
by the memorandum, but the proportion paid and unpaid on each share must remain
the same;
(5) to
cancel shares which, at the date of the passing of the resolution in this behalf,
have not been taken or agreed to be taken by any person.
These five clauses are now explained.
1 . Increase of authorised share capital. A
company, limited by shares, if the articles authorise, can increase its authorised
share capital by passing an ordinary resolution.
Within 30 days of the passing of the resolution, a notice of
increase in the share capital must be filed with the Registrar of Companies. On
receipt of the notice, the Registrar shall record the increase and also make
any alterations which may be necessary in the company’s memorandum or articles or
both.
If default is made in filing the notice, the company and
every officer of the company who is in default shall be punishable with fine upto
Rs 50 per day during which the default continues (s.97).
2. Consolidation and sub-division of shares.
Consolidation is the process of combining shares of smaller denomination. For
instance, 10 shares of Rs 10 each are consolidated into one share of Rs 100.
sub-division of shares is just the opposite of
consolidation, i.e., one share of Rs 100 is divided into 10 shares of Rs 10
each.
Once a resolution has been passed, a copy of the resolution
is required to be sent within thirty days to the Registrar of Companies.
3. Conversion of shares into stock and vice versa. stock is simply a set of fully paid up shares put together and is transferable in any denomination or fraction. On the other hand, a share is transferable as a whole; it cannot be split parts. For example, a share of Rs 10 can be transferred as a whole; it cannot be transferred in parts. But if 10 shares of Rs 10 each fully paid are converted into stock, of Rs 100, then the stockholder can transfer stock, say, worth Rs 17 also.
Section 94 empowers a company to convert its fully paid-up shares into stock by passing a resolution in general meeting, if its articles authorize such conversion. A notice is to be filed with the Registrar within thirty days of the passing of the resolution specifying the shares so converted.
It is to be noted that stock cannot be issued in the first instance. It is necessary to first issue shares and have them fully paid-up and then convert them into stock. Also, stock can be reconverted into fully paid-up shares by passing a resolution in general meeting.
When shares are converted into stock, the shareholders are
issued stock certificates. In the Register of Members, the amount of stock is
written against the name of a particular member in place of number of shares.
The stockholder is as much a member of the company as a shareholder.
4. Diminution of share capital. Sometimes,
it so happens that shares are issued, but are not taken up by the members of
the public and, therefore, not allotted. Section 94 provides that a company
may, if its articles authorise, by resolution in general meeting, cancel shares
which at the date of the passing of the resolution in that behalf have not been
taken or agreed to be taken by any person and diminish the amount of the share
capital by the amount of the shares so cancelled. This constitutes diminution of
capital and should be distinguished from reduction of capital which is
discussed herein below.
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