The company must be authorised by its Articles of Association (AOA) to alter its share capital.
## 2. Manner of Alteration
A limited company having a share capital may, by an Ordinary Resolution (OR) passed at a General Meeting, alter its Memorandum of Association (MOA) in the following ways:
### (a) Increase Authorised Share Capital (ASC)
Increase its authorised share capital by such amount as it thinks expedient.
### (b) Consolidate & Divide / Sub-divide
Consolidate and divide existing shares into shares of a larger amount (reverse stock split).
Note: Such consolidation/division shall NOT result in changes in voting percentage of shareholders — unless approved by the Tribunal.
### (c) Conversion of Shares into Stock
Convert fully paid-up shares into stock; and
Reconvert that stock into fully paid-up shares of any denomination.
### (d) Sub-division
Sub-divide shares into shares of a smaller amount.
Note: The proportion of paid-up to unpaid amount must remain the same on the reduced shares.
### (e) Cancellation of Unissued Shares
Cancel shares which have not been taken up by any person.
Diminish the ASC by the amount of shares so cancelled.
Important: Such cancellation under Section 61 is NOT deemed to be a reduction of share capital under Section 66.
## 3. Filing with ROC (Section 64)
Notice of alteration must be filed with ROC in Form SH-7 within 30 days along with the altered MOA.
## Contravention
Penalty under Section 64 — up to Rs. 500/day during which default continues, subject to a maximum of Rs. 5 lakh (company) and Rs. 1 lakh (officer-in-default).
Worked example
### Example 1
Example 1 — Consolidation: A company has 1,00,000 shares of Rs. 10 each. It wants to consolidate them into 10,000 shares of Rs. 100 each. What resolution is required?
Answer: An Ordinary Resolution at a General Meeting under Section 61, subject to authorisation by the AOA. If voting rights change as a result, Tribunal approval is needed.
### Example 2
Example 2 — Sub-division: A share of Rs. 100 (Rs. 60 paid-up, Rs. 40 unpaid) is sub-divided into 10 shares of Rs. 10 each. What will be the paid-up and unpaid status of each new share?
Answer: The proportion must remain the same. So each new Rs. 10 share will have Rs. 6 paid-up and Rs. 4 unpaid.
### Example 3
Example 3 — Cancellation: Company's ASC is Rs. 10 lakhs (1 lakh shares × Rs. 10). 20,000 shares were never issued. Can these be cancelled, and does Section 66 apply?
Answer: Yes. Under Section 61(1)(e), unissued shares can be cancelled by Ordinary Resolution and ASC diminished accordingly. This cancellation is NOT a reduction of capital under Section 66 [Section 61(2)].
⚠️ Common exam mistakes
Thinking a Special Resolution is required — Section 61 only needs an Ordinary Resolution.
Assuming sub-division of shares can alter the paid-up/unpaid proportion — it cannot.
Confusing cancellation under Section 61 with reduction under Section 66 — only unissued shares can be cancelled under Section 61, and this is NOT a capital reduction.
Forgetting that AOA must authorise alteration of share capital — without this, the resolution is invalid.
Forgetting that consolidation resulting in change in voting rights requires Tribunal approval.
Missing the 30-day filing requirement in Form SH-7 with the ROC.
Bare-Act text Section 61 · Companies Act, 2013 · click to expand
(1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to — (a) increase its authorised share capital by such amount as it thinks expedient; (b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares: Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner; (c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination; (d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (e) 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 its share capital by the amount of the shares so cancelled. (2) The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of share capital.