Home Alteration and Consolidation of Share Capital in Limited Companies

Alteration and Consolidation of Share Capital in Limited Companies

Reorganization of Company’s Share Capital Under the Companies Act 2015

1. Alteration and Consolidation of Share Capital (Section 404)

The alteration and consolidation of share capital are critical processes for limited companies. Below is a detailed explanation of the relevant provisions under Part XV Division 1 of the Companies Act, designed to provide a comprehensive understanding from a legal perspective.

Under Section 404, a limited company having a share capital may alter its share capital only in the following ways:

  • Increase of Share Capital: This can be achieved by allotting new shares to existing or new shareholders. The process often requires shareholder approval and adherence to the company’s articles of association.
  • Reduction of Share Capital: A company can reduce its share capital provided it complies with the procedural requirements outlined in the Companies Act. This includes obtaining a special resolution and in some cases, confirmation by the court to ensure the protection of creditor interests.
  • Subdivision and Consolidation: Companies may also subdivide or consolidate their share capital according to Section 405.

2. Subdivision or Consolidation of Shares (Section 405)

This section empowers a company to:

  • Subdivision: Divide its shares, or any of them, into smaller nominal amounts. For example, a share with a nominal value of KShs 100 can be subdivided into 10 shares with a nominal value of KShs10 each.
  • Consolidation: Combine shares to create larger nominal values. For example, 10 shares of KShs 10 each can be consolidated into one share with a nominal value of KShs 100.

Legal and Procedural Requirements

  • Proportionate Allocation: The proportion between the paid and unpaid amounts on each resulting share must remain consistent with the original shares from which they are derived.
  • Ordinary Resolution: The company’s members must pass an ordinary resolution authorizing the alteration. Such a resolution can provide authority to:
  • Exercise multiple powers under this section.
  • Exercise a power on more than one occasion or under specified circumstances.
  • Articles of Association: The company’s articles may restrict or exclude the exercise of these powers and companies should ensure compliance with their governing documents.

Penalties for Non-Compliance

Failure to adhere to the provisions of Section 405 can result in:

  • A fine not exceeding KES 1,000,000 for the company and each officer in default.
  • Potential reputational damage and legal challenges.

Notice to the Registrar (Section 406)

Following any subdivision or consolidation of shares, a company must notify the Registrar within one month. The notification must include:

  • Details of the Affected Shares: A clear specification of the shares that have been altered.
  • Statement of Capital: This statement must comply with the following requirements:
  • The total number of shares post-alteration.
  • The aggregate nominal value of those shares.
  • For each class of shares:
  • Details of rights attached to the shares, as prescribed by regulations.
  • The total number of shares in that class.
  • The aggregate nominal value of the shares in that class.
  • The amounts paid and unpaid on each share, whether on account of nominal value or as a premium.

Penalties for Non-Compliance

  • Failure to lodge the notice within the stipulated time attracts a fine of up to KES 250,000 for the company and each officer in default.
  • Continued failure to comply may result in daily fines of KES 25,000 for each day the default persists.

Practical Implications for Companies

Legal practitioners and company officers must ensure compliance with these provisions to:

  • Maintain corporate governance standards.
  • Avoid financial penalties and reputational risks.
  • Safeguard shareholder and creditor interests.

Conclusion

Understanding and adhering to the legal framework governing the alteration and consolidation of share capital is essential for any limited company. By following the stipulated processes and notifying the Registrar in a timely manner, companies can ensure compliance and foster trust among stakeholders.

This material is intended solely for informational purposes and should not be relied upon as professional advice. Should you have any questions regarding this topic, please feel free to contact our team at info@ke.andersen.com or +254 20 5100263.

 

Contributor & Contact Person

Victoria Mokaya

Legal & Tax Associate

victoria.mokaya@ke.andersen.com

 

Dianah Mureithi

Head of Legal & Private Wealth

dianah.mureithi@ke.andersen.com

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