Changes in Share Capital
In starting a new business in India, the promoters while incorporating their private limited company or public limited company have to decide the amount of share capital of the company. Having share capital of the company is one of the most important aspects while incorporating a new setup as it defines the nature of company. Company should have capital in order to finance its activities. It raises its capital by issue of shares. Changes in share capital take place in the form of increase in authorised capital /paid-up capital of the company.
Increase in Authorised Capital:
Authorised capital” or “nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company. The authorised share capital is the maximum amount of share capital that a company can issue to its members/ shareholders.
Further issue of shares:
A company can increase its paid-up capital within the dined limit of authorised capital in the following ways:
A) Private Placement: Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42.
B) Preferential allotment/Preferential offer: Preferential issue means offer of shares by a Company to a select person or a group of persons on a preferential basis but does not include offer of shares through right issue, public issue, ESOP, bonus issue etc.
C) Right Issue: A rights issue is when a company issues its existing shareholders a right to buy additional shares in the company.
D) Conversion of Loan/Debentures into shares: Increase of the subscribed capital of the company by the exercise of an option as a term attached to the debenture issue or loan raised by the company to convert such loan/debentures into shares of the company.
E) Bonus issue: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns.