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For the increase/Change in share capital, it is required to acquire the approval of the registrar of companies by filing required forms. The amount of capital to invest in the Company is one of the most critical decisions that have to be made by the supporters when a company is in its incorporation stages. As the business begins to pick up, capital restructuring is defined as altering the of a firm the Company may look to expand its operations, expand in size, scale, or structure. To make that dream a reality, it may require the driving of more funds into the Company, basically increasing/Changing the share capital of the Company. Sometimes, the amount of necessary capital might surpass the limit of the authorized capital at the time.
A company may take the necessary steps required to Increase/Change the authorized capital limit to issue more shares. However, it cannot issue shares exceeding the authorized capital limit in any case. In earlier years, the economy of India was mostly dominated in a centralized way by government intervention and participation and regulated the economy. But the scenario changed with the upcoming of financially strong entrepreneurs such as Ram Prasad Goenka, M.R. Chabria, Sudarshan Birla, Srichand Hinduja, Vijay Mallya and Dhirubhai Ambani who were phenomenal in undertaking certain major corporate restructuring activities. All mergers and acquisitions have one common goal, i.e., to create synergy that makes the value of the combined companies greater than the sum of the two parts.
Instances of beneficial corporate restructuring
The organization utilizes cash to meet its necessity by the method of gaining business premises and stock-in-trade and so on. The company should be limited by shares, the company limited by guarantee having a share capital, the Article of Association must permit the company for alteration of share capital. Increase or decrease of authorized share capital of a company is known as alteration of share capital. As these two terms are not defined under the Companies Act, 2013, there is not https://1investing.in/ much difference between these two words they are used interchangeably in most cases yet in strict senses few differences can be pointed out such as the merger is commonly used for the fusion of two companies. The merger is normally a strategic vehicle to achieve expansion, diversification, entry into new markets whereas Amalgamation is an arrangement for bringing the assets of two companies under the control of one company, which may or may not be one of the original two companies.
Sufficient reserve is also one of the reasons for the reduction in share capital. When government by its order states that any debenture issued to any government by a company or any part under such circumstances, the debenture be converted into shares on the transfer of capital issued by the company. Selective capital reduction for a certain class of shares, with or without payout.
Such competition drives people to change and adapt and face global challenges. Competition is an important driver for change, and hence corporate restructuring becomes vital. Competition drives technological development, cost cutting and value addition. Innovations and inventions happen out of necessity to meet challenges of competition. Protection to private sector reduced, entry of multinationals in Indian markets etc. Hence, there was considerable rise in number of suppliers and cut-throat competition.
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Grab all the benefits for the investors by Changing Share Capital of the Company! CorpBiz professionals will assist you to plan seamlessly at the least cost, ensuring the successful completion of the process. Assets of the company also play a vital role in the variation of the share capital of the company. The financial restructuring will help the Company to reflect the true shareholder value which would place the Company in a position to pay dividend or raise capital in future.
- An arrangement can be explained as where parties agree to do something, notwithstanding the fact there was no dispute between the parties and any scheme other than a scheme by way of compromise or reconstruction which affects the right of creditors or any class of members of the company.
- FormCorpBiz shall be ready with all your compliances such as filing of MGT-14, which is required to be filed within 30 days of passing the resolution in the comprehensive gathering.
- Major income tax benefit arises from set-off and carry forward provision u/s 72A of the Income-tax Act, 1961.
- Grasim Ind. was benefited through economies of scale, increased capacity, overall competitiveness, multifunctional synergies and combined resource pool.
COVID-19 has the potential to transform the dynamics of several industries in the medium to long term. Investing in firms and sectors that profit from changing dynamics can pay off handsomely. In the current environment, companies that are at the forefront of disruptive innovation or are better positioned to capitalise on growth prospects can be excellent investment opportunities.
Strategic Alliance
Another disruptive driver is the use of digital platforms to connect disorganised retail to customers. For example, if any company has the current structure of 10 shares of 10 Rs. each out which 1 share is unpaid then when these shares are sub-divided into the 100 of shares of Re. 1 each then 90 shares will be fully paid-up remain 10 shares will be un-paid. Notice of EGMThe notification of the additional regular gathering, will be given to all the investors and executives of the organization. As well, a share of any part in an organization is a movable property transferable in the way mentioned in the articles of association of the Company. Share Capital is a privilege to a predefined amount of the share capital, carrying with its specific rights and liabilities.
The management of the concerned corporate entity facing the financial crunches hires a financial and legal expert for advisory and assistance in the negotiation and the transaction deals. Once we have power in Article, we can amend the share capital of the company by passing Ordinary Resolution. It is to be noted that amending capital clause is less cumbersome than altering other clauses since other clause required passing of Special Resolution and other approval for example if the company is moving its registered office from one state to another state. Since we already discussed that authorized share capital is the maximum amount of share capital of the company, so one of the most fundamental reasons to alter share capital is to increase the authorized share capital of the company so that company can receive more capital for its growth.
If we go back 10–15 years, we can see significant disruptions happening all around us, and the pattern is just getting worse. Industry landscapes are undergoing revolutionary shifts as a result of disruption brought by technology and changing consumer needs. Investing early in companies that are expected to benefit from disruptive growth can yield higher profits.
It would also include briefly explaining the terms such as merger, demerger, acquisition, amalgamation and compromise, combination through different examples and try to critically analyse how each of them is different from the other. It would also focus on the advantages and disadvantages of corporate restructuring and give an overview of the legal compliance other than the Companies Act, 2013. Through synergies or unlocking value, mergers, acquisitions, and divestitures can create value for shareholders and investors. A firm can gain a significant amount of market share, strengthen its pricing power, uncover cost-cutting possibilities, and improve its operating margins and profitability through mergers and acquisitions. Firms can unlock wealth for shareholders through divestitures if the value of the subsidiary and parent company individually is greater than the total worth of the company.
Economies of scale – Mergers result in enhanced economies of scale, due to which there is reduction in cost per unit. An increase in total output of a product reduces the fixed cost per unit. Such status allows it to take advantage of raising funds at lower cost.
Notice To Registrar
Thus, during the course of meeting the members decide the alteration in the memorandum of association. Thus, after considering all the facts in the welfare of company, the board members by utilizing their powers pass an ordinary resolution. From banking to oil exploration and telecommunication to power generation, petrochemicals to aviation, companies are coming together as never before. Hence the government-controlled economy is no more the situation, in order to cope with the global competition it is being realized that corporate restructuring is a necessity. The company can go for Change in Share Capital by transforming the fully paid-up shares into the Stock.
Global challenges prompting for Corporate
Mergers, demergers, disinvestments, takeovers, joint ventures, franchising, strategic alliances, slump sale are some options that are adopted as a measure to achieve inorganic growth strategy. The Company having Share Capital if so authorized by the Article of Association, can modify the Share Capital. In this case, the Company needs to follow the technique as recommended under the Companies Act, 2013.
Corporate restructuring helps in improving the corporate performance by bringing it at par with competitors by accepting the technological and other changes. Competitive business necessitated to have sharp focus on core business activities, to gain synergy benefits, to minimize the operating costs, to maximize efficiency in operation and to tap the managerial skills to best advantage of the firm. Dr. Reddy’s Laboratory Ltd. is known for their inorganic growth strategies. Since its formation in 1984, it has acquired many companies such as Benzex Lab , Meridian Healthcare , Falcon , Betapharm , DowPharma Small Molecules Business , BASF , Alliance with GlaxoSmithKline .