Unit 3: Share capital & company management

• Divisions of capital: authorised, issued, subscribed, called-up, paid-up; reserve capital (uncalled capital callable only on winding up).
• Alteration (Section 61, ordinary resolution if articles authorise): increase authorised capital, consolidate, sub-divide, convert shares into stock and back, cancel unissued shares. Reduction (Section 66): special resolution + NCLT confirmation.
• Allotment (Sections 39–40): minimum subscription received (90% in public issues), application money at least 5%, return of allotment (PAS-3) within 15 days (30 days for private placement), money kept in a separate bank account; irregular allotment voidable by the applicant.

• Share certificate (Section 46): a document under the company's authority specifying the shares held — prima facie evidence of title. Issued within 2 months of incorporation (subscribers) or of allotment; within 1 month of receiving a transfer. Duplicate certificates for lost or defaced ones; issuing duplicates with intent to defraud is punishable.
• Dematerialisation: listed and most unlisted public companies must issue securities only in demat form (Depositories Act, 1996; Rule 9A); private companies (other than small) moved to demat from 2024–25.
• Share warrant: a bearer document entitling the holder to shares. Companies Act, 2013 prohibits issue of share warrants; existing ones had to be surrendered and converted.
• Calls (Table F): a demand by the board for unpaid share money; must be made by a board resolution, uniformly on all shareholders of a class, with at least 14 days' notice; a call cannot exceed 25% of the nominal value at once and gap between calls must be at least one month (Table F). Calls in advance may carry interest.

• Forfeiture must be in strict accordance with the articles, in good faith; the defaulter ceases to be a member but remains liable for unpaid calls (as a former member).
• Surrender of shares: voluntary return of shares by a member — permitted only where forfeiture would be justified.

• Procedure (Section 56): transfer deed (Form SH-4) duly stamped, executed by transferor and transferee, delivered within 60 days with the share certificate; company registers and issues certificate within one month.
• Refusal (Section 58): private companies can restrict transfer by articles; for public companies, appeal against refusal lies to the NCLT. Securities of public companies are freely transferable (Section 58(2)).
• Nomination (Section 72): a holder may nominate a person to whom securities vest on death.

• A trading company has implied power to borrow; non-trading companies need express power in the MOA.
• Board's powers: borrowing decided at a board meeting (Section 179(3)); borrowing beyond paid-up capital + free reserves + securities premium (excluding temporary loans from bankers) needs a special resolution (Section 180(1)(c)).
• Ultra vires borrowing (beyond company powers) is void; borrowing beyond directors' powers but within the company's powers can be ratified.
• Debenture (Section 2(30)): an instrument evidencing a debt of the company, whether or not constituting a charge on assets.

• Debenture trustee required when debentures are offered to more than 500 persons; Debenture Redemption Reserve rules apply as prescribed; debentures carry no voting rights.
• Charges (Sections 77–87): every charge must be registered with the ROC within 30 days of creation (Form CHG-1).

• Minimum directors: public 3, private 2, OPC 1; maximum 15 (more by special resolution); at least one resident director; woman director and independent directors (one-third in listed companies) as required.
• Classification: executive (MD, WTD), non-executive, independent, nominee, additional, alternate, small shareholders' director.
• DIN: unique Director Identification Number from MCA (Form DIR-3); annual/periodic KYC.
• Appointment: first directors under the articles or subscribers; by shareholders in general meeting; by the board (additional, alternate, casual vacancy); proportional representation; by the Tribunal; consent in DIR-2 and return in DIR-12. Retirement by rotation — one-third of rotational directors retire at each AGM in a public company.

Removal of directors

• A director appointed by the Tribunal under Section 242 cannot be removed under Section 169.
• Vacation of office (Section 167): disqualification under Section 164, absence from all board meetings for 12 months, contravention of interested-party rules, conviction with 6 months' imprisonment, etc.
• Removal by the Tribunal in cases of oppression and mismanagement (Section 242).

• Requisites of a valid general meeting: proper authority, 21 clear days' notice (shorter with consent of 95%), quorum (public: 5/15/30 by membership size; private: 2), chairman, proxies (Section 105), resolutions, minutes within 30 days (Section 118).
• Resolutions: ordinary (simple majority) and special (votes in favour at least three times votes against).
• E-voting (Section 108): listed companies and companies with 1,000 or more members must provide remote e-voting through NSDL/CDSL; a scrutiniser reports results.
• Postal ballot (Section 110) for specified items; video conferencing permitted for board meetings and (by MCA circulars) for general meetings.