Reorganization through Sub Division and Consolidation of Shares
Share capital reorganization refers to the alteration of the structure of a company’s share capital without changing the total capital amount. Two common forms of such reorganization are Sub-Division (also called splitting) and Consolidation of shares. These changes are often carried out to improve marketability, adjust share prices, or comply with statutory requirements. Both processes require following the provisions of the Companies Act, 2013 (particularly Section 61) and the company’s Articles of Association.
Sub-Division of Shares:
Sub-division of shares means dividing the existing shares of the company into shares of smaller denominations. This does not change the total share capital but increases the number of shares. For example, a company having 1,00,000 equity shares of ₹10 each can sub-divide them into 10,00,000 shares of ₹1 each.
Objectives of Sub-Division:
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Increase marketability: By reducing the nominal value, the market price per share may become more affordable for small investors.
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Improve liquidity: More shares in the market may lead to higher trading volumes.
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Compliance: Sometimes required to meet stock exchange norms regarding minimum public shareholding.
Legal Requirements:
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Must be authorized by the Articles of Association.
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Approval through a resolution in a general meeting.
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Necessary filings with the Registrar of Companies (RoC) in prescribed forms.
Effects of Sub-Division:
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Face value decreases while the number of shares increases.
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Shareholder’s proportionate ownership remains unchanged.
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The market price per share usually adjusts in proportion to the split.
Example of Sub-Division:
If a company has 1,00,000 shares of ₹10 each (₹10,00,000 total capital) and decides to sub-divide them into shares of ₹2 each, the result will be 5,00,000 shares of ₹2 each. The total share capital remains ₹10,00,000.Journal Entry for Sub-Division
In accounting, no journal entry is usually required because the total capital remains unchanged. Only the share capital register and related documents are updated.
Consolidation of Shares:
Consolidation of Shares means combining the existing shares of smaller denominations into shares of larger denominations. This process reduces the number of shares while keeping the total capital constant. For example, 10,00,000 shares of ₹1 each may be consolidated into 1,00,000 shares of ₹10 each.
Objectives of Consolidation:
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Reduce Administrative burden: Fewer shares mean reduced costs of share registry maintenance.
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Increase Market price per Share: This may improve the company’s perception in the market.
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Compliance: Sometimes used to meet minimum share price requirements for certain stock exchanges.
Legal Requirements:
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Must be permitted by the Articles of Association.
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Requires approval via a general meeting resolution.
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Filing with the RoC is mandatory.
Effects of Consolidation:
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Face value increases while the number of shares decreases.
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Ownership proportion remains unchanged for each shareholder.
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Market price per share adjusts accordingly, although total market capitalization remains unaffected.
Example of Consolidation:
If a company has 5,00,000 shares of ₹2 each (₹10,00,000 total capital) and decides to consolidate them into shares of ₹10 each, the result will be 1,00,000 shares of ₹10 each. The total share capital remains ₹10,00,000.
Journal Entry for Consolidation:
Similar to sub-division, consolidation usually requires no journal entry in the books, as it is a change in denomination, not in the total capital. Adjustments are made in the share capital records.
Comparison between Sub-Division and Consolidation
Basis | Sub-Division | Consolidation |
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Denomination | Reduced | Increased |
Number of Shares | Increases | Decreases |
Purpose | To make shares more affordable, increase liquidity | To increase share price, reduce admin work |
Effect on Capital | No change in total share capital | No change in total share capital |