A company may alter its share capital. This is provided for in section 71(1) of the Companies Act.

Section 71(1) of the Companies Act states:

Subject to subsections (1B) and (1C), a company, if so authorised by its constitution, may in general meeting alter its share capital in any one or more of the following ways:

(a) [Deleted by Act 21 of 2005]
(b) consolidate and divide all or any of its share capital;
(c) convert all or any of its paid‑up shares into stock and reconvert that stock into paid‑up shares;
(d) subdivide its shares or any of them, so however that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share is the same as it was in the case of the share from which the reduced share is derived;
(e) cancel the number of shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the number of the shares so cancelled.

If a public company wishes to alter its share capital, it may lodge with the Registrar a notice in the prescribed form (section 71(1A) of the Companies Act).

If a private company wishes to alter its share capital, it may lodge with the Registrar a notice in the prescribed form (section 71(1B) of the Companies Act).

 

 

What is consolidation of share capital?

A consolidation of a company’s share capital is to reduce the number of shares held by each shareholder by merging multiple shares into one. So for example, a company may consolidate 4 shares into 1. A shareholder with 4000 shares will in the end have 1000 shares. Hypothetically, if the 4000 shares had a value of $4000, this means that one share has a value of $1. After the consolidation, the 1000 shares will have a value of $4000. Hence one share has a value of $4. This consolidation is also sometimes referred to as reverse stock split.

 

What is division of share capital?

A division of share capital is a stock split. This is the opposite of consolidation. This means that if a shareholder hold 1000 shares and 1 share is to be divided into 4 shares, then he will have 4000 shares after the division. It can also be referred to as 1000 shares are split into 4000 shares.

 

The subdivision of shares and cancellation of shares are self explanatory. Subdivision means that the shares are divided up. Cancellation means that the shares cease to exist.

 

The distinction between shares and stock are much less prevalent in today’s context. Stock is considered a portion of the company’s share capital as expressed in dollars whereas shares are expressed in distinct units with each share needing to be numbered. In most cases, the provision on converting paid up shares into stock and vice versa will seldom be utilised.

 

If you need assistance in altering your company’s share capital, you may contact the corporate compliance team at Raffles Corporate Services at [email protected].

 

Yours sincerely,

The editorial team at Raffles Corporate Services