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Explanatory Statement - Reclassification of Share Capital of the Company

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Published on 02/01/2025
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Explanatory Statement - Reclassification of Share Capital of the Company

Counselvise
Corporate Law / Company Law

Template Description

This notice template used as a comprehensive overview of the proposed Reclassification of share capital within a company under the Companies Act 2013. It is a 2-page MS Word document is mandatory for company who are Reclassifying share capital. The intended audience for this template includes company directors, legal professionals, company secretaries, and shareholders

 

Understanding the Concepts of Reclassification of Share Capital


Terminologies


  • Explanatory Statement: A detailed account of the material facts regarding the special business outlined in the notice of the meeting. It provides shareholders with the necessary information to make informed decisions.


  • Authorized Share Capital: The maximum amount of share capital that a company is authorized to issue as per its Memorandum of Association.


  • Reclassification of Shares: The process of changing the type or value of shares in the authorized share capital. This often involves converting shares from one class to another or altering their nominal value to meet the company's financial needs.

 

Procedure for Reclassifying Authorized Share Capital:

 

  • Preparation of Explanatory Statement (Section 102): Draft the explanatory statement detailing the reclassification proposal, including the current and proposed structure of share capital and the rationale behind the change and its implications for shareholders.


  • Review and Approval: The board of directors must review and approve the explanatory statement. It should be included in the notice for the General Meeting where shareholders will vote on the proposed reclassification.


  • General Meeting and Voting: Present the explanatory statement during the General Meeting. Shareholders will discuss and vote on the Ordinary resolution to approve the reclassification of authorized share capital.


  • Filing of Amendments (Section 13): Post-approval, file the necessary amendments to the Memorandum of Association with the Registrar of Companies, reflecting the reclassified authorized share capital.


  • Compliance with SEBI Regulations: If the company is listed, compliance with the Securities and Exchange Board of India (SEBI) regulations is required. This might include additional filings and disclosures.


  • Public Notification: The company should issue a public notice about the reclassification, particularly if it affects shareholders or the general public.


  • Update Company Records: Update the company’s records, including the Register of Members and other relevant statutory registers, to reflect the changes in share capital.


  • Annual Return: The changes should be reflected in the Annual Return of the company, which must be filed with the ROC.

 

Conclusion

This template offers standardized format for companies to document in the preparation of an explanatory statement for the reclassification of authorized share capital. It ensures that the company’s fundamental document accurately reflects details of the reclassification proposal and compliance with the Companies Act, 2013. Proper drafting and presentation of the explanatory statement are vital for the transparency and effectiveness of the General Meeting, facilitating informed decision-making by shareholders.