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Reduction of Share Capital Procedure

A company limited by shares or limited by guarantee and possessing a share capital by a special resolution may reduce the share capital in any manner, subject to NCLT approval on the company’s application, as required under section 66 of the Companies Act 2013. It can especially diminish. Reduction of share capital of the company means reduction in. We have told about the Reduction of Share Capital Procedure in this article. so read complete article

NCLT - Procedure for reduction share capital rules, 2016

The following must be included with a request to confirm a decrease in a company’s share capital:

(a) A statement from the company’s auditor attesting that the list of creditors referred to in paragraph (a) is accurate in accordance with the company’s records as attested by the auditor;

(b) The firm is not, as of the application’s filing date, behind in the repayment of the application, the deposits, or the interest thereon, according to a certificate from the auditor and a declaration from a director;

(c) A declaration from the company’s auditor that the accounting treatment it is proposing for the share capital reduction complies with the accounting standards outlined in section 133 or any other Act provisions.

Reduction of Share Capital Procedure

Reduction of share capital procedure requires the permission of

  1. holding a board meeting with the purpose of reduction of Share Capital Procedure
  2. If the business is behind on the return of any deposits it took, either before or after the effective date of the Companies Act, 2013, or the interest due thereon, no reduction of the share capital may be done. [Section 66(1) Proviso]
  3. Every creditor’s debt or claim has been settled, decided, secured, or his agreement has been gained.
  4. holding the necessary general meeting and voting on the necessary resolution for the reduction of share capital

Reduction of share capital procedure example

Example 1. The corporation may reduce the shares to fully paid-up shares of Rs. 25 and release the shareholders from obligation on the uncalled capital of Rs. 25 per share if the shares have a face value of Rs. 50 each, of which Rs. 25 has been paid.

Example 2. If assets valued at Rs. 25 are used to represent shares with a face value of Rs. 50 apiece that are completely paid up. In this situation, the share capital may be reduced by cancelling 25 rupees from each share and devaluing equivalent assets.

Reduction share capital under the 2013 Companies Act

Through the adoption of a Special Resolution and with the previous consent of the Tribunal on an application, any company, whether limited by shares or limited by guarantee, with a share capital may lower the share capital in any way, and in particular, may—

  • discharge or lessen the obligation on any of its shares with respect to the unpaid-up share capital; or
  • without or with the intent to reduce or discharge the liability on any of its shares,
  • void any paid-up shares that are no longer valid or are not represented by the available assets; or
  • pay off any paid-up share capital that exceeds the company’s requirements.

Circumstances of reduction of share capital

Reductions in share capital can occur for a variety of reasons, such as accumulating company losses, assets with diminished or uncertain value, etc. Utilizing reserves or a share premium account to offset the accumulated company losses is another way to reduction of Share Capital procedure.

Reduction of share capital section 66

A corporation limited by shares or limited by guarantee with a share capital may, by special resolution, reduce the share capital in any way, and in particular, may do so pending approval by the Tribunal in response to a request by the corporation.

(a) eliminate or lessen the obligation on any of its shares with regard to the unpaid-up share capital; or

(b) Whether or not it eliminates or lessens the obligation on any of its shares,

(i) void any fully paid-up shares that have been lost or are not represented by the available assets; or

(ii) pay off any paid-up share capital that exceeds the company’s needs.

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This entry was posted in Income taxes and tagged home businessincome taxesand tax deductions.