Company law revision question and answer

Explain how the capital of a company may be:
i) Altered;
ii) Reduced;
iii) Increased;

Answer
Under Section 63 (1) of the Companies Act, the capital of accompany can be altered in various ways namely:

Increase of capital
 Sub-division of shares
 Conversion of shares to stock
 Re-conversion of stock to shares
 Consolidation of shares
 Diminution of capital
i)
 To alter the company‟s capital in the aforementioned ways, the following conditions are necessary:
 The articles of the company must authorise the alteration.

The alterations must be authorised an ordinary resolution of members in general meeting
 The registrar must be notified of the alteration within 30 days of the resolution.

ii) The Companies Act prescribes the circumstances in which a company may reduce its capital. The circumstances are prescribed in sections 68 to 71 of the Act. For a company to reduce its capital the following conditions/steps are necessary:
• Authority of the Articles: Under section 68 (1) of the Companies Act, thepower to reduce a company‟s capital must be embodied in the articles.

• Special Resolution: Under Section 68 (1) of the Act, a reduction of capitalmust be authorised a special resolution of members in the general meeting. This resolution is referred to as resolution for reducing capital. A reduction of capital may take the form of:

– Extinguishing or reducing liability of unpaid capital.

– Cancellation of any paid up capital which is lost or unrepresented available assets.
– Paying of any paid up capital which is in excess of the wants of the company.

• Application to Court for confirmation: Under Section 69 (1) of the Act, anapplication must be made to the court for confirmation of the reduction. The court must generally satisfy itself that the reduction is not unfairly prejudicial to any class of members or creditors. In particular, it must satisfy itself that creditors entitled to object have objected or consented to the alteration. In the case of and objection, the courts must satisfy itself that the creditor‟s claim has been discharged, determined or secured. If satisfied that creditors‟ interests have been given the requisite attention, the court may confirm the reduction.

• Confirmation of the reduction: Under Section 70 (1) of the Act, if the courtis satisfied that all creditors have consented and/or their claims have been discharged, determined or secure, it may make an order confirming the reduction on such terms and conditions as it deems fit. The court may for any special reason and for a specified duration order the company to add the words “and reduced” to its name and for the duration of the order, the words and reduced form part of the company‟s name.

• Registration of the reduction: Under Section 71 (1) of the Act, uponproduction of a certified copy of the court order and the mincite approving the reduction of capital, the registrar of companies registers the same and publishes the same in accordance with the direction of the court.

• Under Section 71 (2) of the Act, a reduction of capital take effect when registered with the registrar.

iii) Under Section 63 (1) of the Companies Act, a company limited shares may, if authorised its articles, increase its capital new shares of any amount. The increase must be authorised an ordinary resolution of members in general meeting.

Under Section 65 (1) of the Act, the registrar must be notified of the increase within 30 days of the resolution whereupon he registers the same.

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