Current Authorised Capital of the company consist of – 1. Equity Shares 2. 9% Redeemable Preference Shares
Currently the company has redeemed its Paid - up 9% Redeemable Preference Shares. Thus, paid-up Capital of the company has been reduced and this will not have any effect on its Authorised Capital as per Section 80 (3). For this case we need to file form5. Please suggest that we’ll show only decrease in Paid-up Capital and nothing else right??
Further, my company wants to issue Equity Shares but for this we will have to increase our Authorised Equity Shares. And the Company does not require its Authorised Preference Shares. The Company has decided to do the following – 1. To convert existing Authorised Preference Shares into Authorised Unclassified Shares 2. to convert Authorised Unclassified Shares into Equity Shares
Please suggest the procedure for the above case. (It’s a Private Limited Company). Also if you any other option so that we will not require to increase our Authorised Equity Shares in normal way and pay Stamp Duty.
01 June 2011
In my opinion. after redemption of Preference shares, you convene an EGM of the members of the Company, whereat, pass an Ordinary resolution to cancel the unissued Preference Share Capital and re-classify the Authorised Share Capital entirely into Equity Share Capital. File Form 5 within 30 days from the date of passing of Ordinary Resolution. In case of re-classification, u shall not be required to pay any stam duty, as there is no increase in the Authorised Share Capital.
But my query is - Can we do this way?? I mean will it not be considered as conversion of Preference share capital into equity capital? which is in my knowledge not allowed..
please reply as its very urgent.. and if its allowed, then is following resolution proper??
“RESOLVED THAT pursuant to Section 16, 94 and other applicable provisions, if any, of the Companies Act, 1956, the 9% Redeemable Preference Share Capital consisting of 60,00,000/- (Sixty Lakhs) Preference Shares of Rs. 10/- each aggregating to Rs. 6,00,00,000/- (Rupees Six Crores only) lying unissued be and are hereby cancelled for the purpose of reclassification of Authorised Capital of the Company and that the Authorised Share Capital of the Company be and is hereby reclassified to Rs. 9,00,00,000/- (Rupees Nine Crores only) divided into 90,00,000/- (Ninety Lakhs ) Equity Shares of Rs. 10/- each.
RESOLVED FURTHER THAT the Memorandum of Association of the Company be suitably altered by substitute the following the following for existing Clause V of the Memorandum of Association of the Company.”
02 June 2011
No pooja.....with reference to my reply, u r cancelling the unissued Preference share capital from the authorised share capital and this will not be conversion of preference share capital into equity share capital. Only issued preference share capital can be converted into Equity share capital, if the terms of issue so provide.
After redemption of preference share capital, issued share capital shall consist of only Equity share capital.
We had faced a similar situation in one of our group companies, and i have suggested the same course which we followed.
02 June 2011
ok.. toh what I have understood is that we can not convert our Authorised Pref cap inti Auhtorised equity cap. But what you suggested me to do is Canceling Authorised Pref Cap and reclassificaton of thesame into Authorised Equity Capital.
Can you please go through the ordinary resolution of EGM?? Please suggest if I have to add anything...
One more question, is it necessary to cancel the current pref cap and put it into unclassified cap and then reclassify into Equity? if yes then please provide me with resolution for the same...
03 June 2011
Pls. find herewith the draft resolution:
“RESOLVED THAT pursuant to the provisions of Section 16, 94 and other applicable provisions, if any, of the Companies Act, 1956 (including any statutory amendment, modification or re-enactment thereof, for the time being in force) consent of the members be and is hereby accorded to cancel unissued ___________ (in words) 0% Optionally Fully Convertible/Redeemable Preference Shares of Rs.10/- each from the existing Authorised Capital of the Company of Rs. 160,00,00,000/- (Rupees One Hundred Sixty Crores only) divided into 8,75,00,000 (Eight Crores Seventy Five Lacs) Equity shares of Rs.10/-(Rupees Ten) each and 7,25,00,000 (Seven Crores Twenty Five Lacs) 0% Optionally Fully Convertible/Redeemable Preference shares of Rs.10/-(Rupees Ten) each and reclassify the Authorised Capital of the Company to Rs. 160,00,00,000/- (Rupees One Hundred Sixty Crores only) to be divided into 16,00,00,000 (Sixteen Crores) Equity shares of Rs.10/-(Rupees Ten) each.
RESOLVED FURTHER THAT the Memorandum of Association of the Company be suitably altered by substituting the existing Clause V with the revised Clause V which reads as under:
V. The Authorised Share Capital of the Company is Rs. 160,00,00,000 (Rupees One Hundred Sixty Crores only) divided into 16,00,00,000 (Sixteen Crores) Equity Shares of Rs. 10/- each.
RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, Mr. _________ , Mr. _______________ , Directors, Mr. ___________, Managing Director of the Company or Mr. __________, Company Secretary be and are hereby severally authorised to do all such acts, deeds, matters and things as they may in their absolute discretion deem expedient, necessary, fit or proper in connection therewith or incidental thereto and to settle all/any questions, doubts or difficulties which may arise in this regard.”
Further, u can cancell the unissued preference share capital directly no need to convert it into unclassified shares!
CAclubindia
