The reorganisation of Share Capital

Share Capital, Company,

Alteration and consolidation of share capitalCompany

A company will pass an ordinary resolution to realise its rights to alter the shares of the company – share capital. The ordinary resolution may focus on one or all rights provided – subdivision; or consolidation or division.

Sub-division or consolidation of shares: A limited company may alter its shares by increasing or reducing the share capital by allotting new shares or consolidation. The subdivision of the shares or any available classes will create shares with a smaller nominal value than the existing shares while the shares’ consolidation or division into shares with larger nominal value. However, it is essential that while taking any of these measures, the proportion between paid and unpaid shares remains constant as it was before the alteration.

The company’s right to reorganise through this model is not absolute as the company can exclude or restrict the application through the Article of Association.

If the company contravenes any of the set conditions, the company, on conviction, will be liable to a fine not exceeding Kenya Shillings one million.

Once the company successfully complies with the set conditions, it must notify the Registrar of the subdivision or consolidation of the shares. Failure to notify the Registrar, the officers in default, would have committed an office that attracts a fine not exceeding Kenya Shillings Two Hundred and Fifty Thousand upon conviction.

Reduction of share capital: A limited company, through a special resolution as per the Companies Act, may reduce its share capital. The reduction may primarily be towards unpaid share capital; or either with or without extinguishing or reducing liability on any of its shares: by cancelling any paid-up share capital that is lost or unrepresented by available assets; or repay any paid-up share capital in excess of the company’s requirements.

The company, after passing the resolution, will apply to the Court for confirmation of the reduction. The Court will confirm whether there is or no need for an objection to the reduction or particular classes of shares, importantly, whether it will apply to a specific class of creditors. After that, the company’s authorized officer will present to the Registrar the documents to register and update the Companies Register.

Subject to s 411, a member of the undertaking (past or present) after the reduction of capital is not liable in respect of any share to any call or contribution exceeding the amount of difference between the reduced shares; and the amount paid on the share, or reduced amount, that is treated as paid on it. However, this does not affect the rights of contributories among themselves. If a creditor entitled to object to the reduction was unaware of the process, the company member at the date when the resolution took effect will be liable and contribute to the payment of the debt. If the company is unable to pay the amount, and the liquidation has been completed, the creditor will apply to the court, and if satisfied, the liable members will be compelled as if the members were ordinary contributors to the liquidation.

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