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Reduction or dimunition of authorized share capital

Llewellyn (Director) (30 Points)

17 May 2018

If a company has its authorized share capital as 10Lakhs and its paidup capital as 1 Lakh, can it reduce or dimunit its authorized share capital as 1.5 or 2 Lakhs?

What would be the process if the AOA states that the company may reduce its share capital by special resolution? Would the MOA & AOA also need ammendment?

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CA Sunil Kumar (Chartered Accountant) (4514 Points)
Replied 17 May 2018

Yes Authorized share capital can be reduced, this is known as Diminution.

Diminution of capital (i.e. share capital) of a Company means reduction of the share capital by cancellation of the unsubscribed part of the issued capital.

If authorised by the Articles of Association of a Company, Diminution of capital is possible by passing of an ordinary resolution in the general meeting of shareholders. If the articles do not authorise for the same then articles can be amended as per the provisions of the Companies Act 2013 to include necessary provisions for the same in the articles.

Diminution of capital should not be confused with the reduction of capital as per section 66 of the companies act 2013 (earlier section 100 of the companies act 1956). While reduction of capital in accordance of section 66 requires confirmation of the same by the Tribunal, diminution of capital as per section 61(1)(e) do not require such confirmation by the Tribunal.