Procedure for Variation of Shareholders Rights

Procedure-for-Variation-of-Shareholders-Rights


Section 48 of the Act provides that where the share capital of a company is divided into different classes of shares, the rights attached to may be varied either with the consent in writing of the holders of not less than three-fourth of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class.

Variation of rights of a class of shareholders can be effected either by consent or by special resolution; it is not necessary that the consent given should be further confirmed by a special resolution.

Accordingly, where there are equity shares and preference shares in a company the rights attached to the preference shares, namely the rate of dividend payable on such shares or the period of redemption can be varied by passing a special resolution at a meeting of the holders of the preference shares. The special resolution in respect of section 48 in a listed company shall be passed by postal ballot. The variation can be made, provided there is provision in the Articles or Memorandum or in the absence of any such specific provision, the variation shall not be prohibited by the terms 'of the issue of the shares. If the company has issued more than one series of preference shares, each having different rights, each issue will belong to a class and action shall be taken for each class separately.

Procedure for Variation of Shareholders Rights

(i)     Check the Memorandum and Articles for provision relating to variation of rights.
(ii)   Where there is no provision in the Memorandum or Articles, it should be ensured that the variation is not prohibited by the terms of issue.
(iii)  If neither the Memorandum and Articles nor the terms of issue permit variation of rights, then first take steps to alter the Memorandum or Articles as the case may be to permit variation.
(iv)   Consider and approve the proposal at a meeting of the Board.
(v)  Intimate the particulars of the proposed change to the stock exchange where the shares are listed. In terms of Regulation 29(3) of the SEBI Listing Regulations, the company cannot make any change in the terms or nature of its securities that are listed on the stock exchange without giving 11 days' prior notice to the Exchange of the proposed change and making an application for listing of the securities as changed, if so required by the Exchange.
(vi) Separate class meetings will be called of preference shareholders and equity shareholders. Where the variation affects only one class, it is sufficient if the meeting of that class only is held. But it is desirable, that the consent of the members belonging to the other class should be taken, as their rights will automatically be varied by the proposed change.
(vii)  Special resolutions should be passed in regard to the variation.
(viii) If a company is a listed company, then special resolution aforesaid is to be passed  through postal ballot only.
(ix)   A general meeting will be convened to pass a special resolution.
(x)   Prescribed Form MGT-14 will be filed in respect of resolutions passed in the class meetings as well as in the general meeting with the Registrar electronically within 30 days of passing of resolution.
(xi)  Where the dissenting shareholders have made an application to the Tribunal, the company shall file a copy, of the Tribunal's order with the Registrar within 30 days of the service thereof on the company.
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