When founders first incorporate a company, the authorised share capital often feels like a theoretical number—something you set once and forget. But growth has a way of forcing decisions. New investors come in. Existing shares need restructuring. Sometimes capital needs to be reduced on paper without touching real money.
Section 61 of the Companies Act, 2013 gives companies the legal power to respond to these situations. It lays down the ways of alteration of the share capital in a company that is limited by shares, without court approval. Used correctly, it brings flexibility. Used casually, it can create compliance gaps that show up much later.
What Is Section 61 of the Companies Act, 2013?
At its core, Section 61 allows companies to alter share capital within defined limits.
It provides that a company limited by shares or guarantee and having a share capital may change its share structure, provided it has the authority in its Articles of Association (AOA).
In simple terms, it is the power of a limited company to alter its share capital without changing its overall financial health.
Who Can Use Section 61?
Section 61 applies to:
- Companies limited by shares
- Companies limited by guarantee and having share capital
Unlimited companies and reduction of capital (Section 66) are treated separately.
Authority Through Articles of Association
A crucial prerequisite often overlooked:
- The Articles of Association must permit alteration of share capital
If not:
- The AOA must be amended first
- Then Section 61 powers can be exercised
This step alone delays many transactions in practice.
Ways to Alter Share Capital Under Section 61
Increase in Authorised Share Capital
A company may:
- Increase its authorised share capital
- Create new shares of such amount as it thinks fit
This is common when funding rounds are planned.
Consolidation of Shares
Here, the company:
- Combines smaller face-value shares into higher denominations
For example:
- Ten shares of ₹10 each → One share of ₹100
This is often done to simplify shareholding.
Conversion into Stock
Shares can be:
- Converted into stock
- And later reconverted into fully paid shares
Though rare today, the option still exists under law.
Sub-Division of Shares
Sub-division means:
- Breaking larger shares into smaller face-value shares
Example:
- One share of ₹100 → Ten shares of ₹10
This improves share accessibility without changing ownership percentage.
Cancellation of Unissued Shares
A company may:
- Cancel unissued authorised shares
- Without reducing paid-up capital
This helps clean up inflated authorised capital.
Section 61 vs Reduction of Share Capital
This distinction matters.
Section 61 deals with structure, not value.
It does not:
- Reduce paid-up share capital
- Require Tribunal approval
Reduction of share capital falls under Section 66 and involves stricter scrutiny.
Procedural Steps Under Section 61
From experience, this is where mistakes creep in.
Typical compliance includes:
- Board resolution approving alteration
- Shareholders’ approval (ordinary resolution)
- Alteration of MOA (capital clause)
- Filing of Form SH-7 with ROC
Skipping any step invalidates the alteration.
Practical Business Scenarios
I’ve seen startups rush into investor negotiations, assuming authorised capital can be changed overnight. Section 61 allows flexibility—but only if groundwork is ready. Articles, approvals, and filings all need alignment.
Why Section 61 Matters for Growing Companies
Section 61:
- Enables fundraising
- Helps reorganise shareholding
- Supports mergers and restructuring
- Keeps capital structure aligned with business realities
It’s a quiet enabler of corporate growth.
Key Compliance Pitfalls to Avoid
- Altering capital without AOA authority
- Forgetting ROC filings
- Mixing capital alteration with capital reduction
- Delaying shareholder approvals
Small mistakes under Section 61 can snowball later.
Conclusion
Section 61 of the Companies Act, 2013 gives companies breathing space. It recognises that businesses evolve and empowers them to adjust their share capital structure legally, transparently, and efficiently.
Used thoughtfully, it’s a strategic tool. Used casually, it becomes a compliance risk.
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