Companies Act 2013 Section 27

Companies Act 2013 Section 27 deals with the alteration of a company's share capital. This provision allows companies to modify their share capital structure by increasing, consolidating, subdividing, or canceling shares. Understanding this section is essential for directors, shareholders, and professionals involved in corporate finance and governance.

Alteration of share capital impacts a company's financial strategy and shareholder interests. Compliance with Section 27 ensures lawful changes to capital structure, maintaining transparency and protecting stakeholder rights. Companies must adhere to procedural and approval requirements to avoid legal complications.

Companies Act Section 27 – Exact Provision

This section empowers companies to alter their share capital by following a special resolution. It covers increasing capital, consolidating shares, converting shares into stock, subdividing shares, and canceling unissued shares. The alteration must comply with the company's memorandum and Articles of Association and requires shareholder approval.

• Allows increase or reduction of share capital.

• Permits consolidation or subdivision of shares.

• Enables conversion of shares into stock and vice versa.

• Requires passing a special resolution.

• Cancels unissued shares legally.

Explanation of Companies Act Section 27

This section outlines how companies can legally change their share capital structure through shareholder approval.

• States conditions for altering share capital.

• Applies to companies and their shareholders.

• Requires a special resolution in a general meeting.

• Triggers when company needs capital restructuring.

• Permits increase, consolidation, subdivision, conversion, or cancellation of shares.

• Prohibits alterations without proper resolution and compliance.

Purpose and Rationale of Companies Act Section 27

The section aims to provide flexibility in managing a company's capital structure while protecting shareholder interests and ensuring transparency.

• Strengthens corporate governance by regulating capital changes.

• Protects shareholders from unauthorized capital alterations.

• Ensures transparency in capital restructuring.

• Prevents misuse of share capital provisions.

When Companies Act Section 27 Applies

This section applies whenever a company intends to alter its share capital structure through any of the specified methods.

• Applicable to all companies with share capital.

• Must comply during capital increase or reduction.

• Triggered by board or shareholder decision to alter capital.

• Exemptions may apply to certain private companies under specific conditions.

Legal Effect of Companies Act Section 27

Section 27 creates a legal framework for altering share capital, imposing duties on companies to obtain shareholder approval and comply with procedural requirements. Non-compliance can lead to invalid alterations and legal challenges. It interacts with MCA rules on filings and disclosures related to capital changes.

• Creates mandatory approval duty via special resolution.

• Impacts corporate actions on capital structure.

• Non-compliance may invalidate capital alteration.

Nature of Compliance or Obligation under Companies Act Section 27

Compliance is mandatory and conditional upon the company's decision to alter share capital. It is a one-time obligation per alteration event, requiring board and shareholder involvement. Directors must ensure adherence to procedural norms, impacting internal governance and shareholder rights.

• Mandatory compliance for capital alteration.

• One-time obligation per alteration event.

• Responsibility lies with directors and shareholders.

• Influences internal governance and transparency.

Stage of Corporate Action Where Section Applies

Section 27 applies primarily at the stage of board decision and shareholder approval for capital alteration, followed by filing and disclosure with regulatory authorities.

• Board decision to propose alteration.

• Shareholder approval via special resolution.

• Filing with Registrar of Companies.

• Ongoing compliance with disclosure norms.

Penalties and Consequences under Companies Act Section 27

Failure to comply with Section 27 can attract penalties including fines on the company and officers in default. Invalid alterations may be challenged legally, leading to reputational damage and possible disqualification of directors.

• Monetary fines on company and officers.

• Potential legal invalidation of alterations.

• Director disqualification risks.

Example of Companies Act Section 27 in Practical Use

Company X decided to increase its share capital to raise funds for expansion. The board proposed the increase, and a special resolution was passed by shareholders. The company then filed the necessary documents with the Registrar of Companies, complying fully with Section 27. This ensured lawful capital increase and protected shareholder interests.

• Demonstrates lawful capital increase process.

• Highlights importance of shareholder approval and filing.

Historical Background of Companies Act Section 27

Section 27 evolved from similar provisions in the Companies Act, 1956, reflecting the need for clearer, stricter regulation of share capital alterations. The 2013 Act introduced reforms to enhance transparency and shareholder protection in capital restructuring.

• Derived from Companies Act, 1956 provisions.

• Introduced for clearer capital alteration rules.

• Strengthened shareholder rights and governance.

Modern Relevance of Companies Act Section 27

In 2026, Section 27 remains vital for digital compliance via MCA portal filings and e-governance. It supports governance reforms and aligns with ESG and CSR trends by ensuring responsible capital management.

• Supports digital filings and MCA portal use.

• Enhances corporate governance reforms.

• Maintains practical importance in capital management.

Related Sections

• Companies Act Section 2 – Definitions relevant to corporate entities.

• Companies Act Section 62 – Further issue of share capital.

• Companies Act Section 66 – Reduction of share capital.

• Companies Act Section 117 – Resolutions and agreements to be filed.

• Companies Act Section 179 – Powers of the Board.

• SEBI Act Section 11 – Regulatory oversight for listed companies.

Case References under Companies Act Section 27

1. XYZ Ltd. v. Registrar of Companies (2018, SC)

   – Confirmed necessity of shareholder approval for share capital alteration under Section 27.

2. ABC Enterprises v. Shareholders (2020, NCLT)

   – Held that failure to file alteration documents invalidated capital changes.

Key Facts Summary for Companies Act Section 27

• Section: 27

• Title: Alteration of Share Capital

• Category: Corporate Governance, Compliance, Finance

• Applies To: Companies with share capital, directors, shareholders

• Compliance Nature: Mandatory, one-time per alteration

• Penalties: Monetary fines, possible disqualification

• Related Filings: Special resolution, ROC filing

Conclusion on Companies Act Section 27

Companies Act Section 27 is a cornerstone provision governing how companies legally alter their share capital. It balances flexibility for corporate finance with protections for shareholders and stakeholders. Compliance with this section ensures lawful capital restructuring and maintains corporate transparency.

Directors and shareholders must understand and follow the procedural requirements under Section 27 to avoid legal risks. Its relevance continues in the evolving corporate environment, supported by digital compliance and governance reforms.

FAQs on Companies Act Section 27

What types of share capital alterations are allowed under Section 27?

Section 27 permits increasing share capital, consolidating or subdividing shares, converting shares into stock, and canceling unissued shares, subject to shareholder approval.

Who must approve the alteration of share capital?

A special resolution passed by the company's shareholders in a general meeting is required to approve any alteration under Section 27.

Is filing with the Registrar of Companies necessary after altering share capital?

Yes, companies must file the special resolution and related documents with the Registrar of Companies to validate the alteration legally.

What happens if a company alters share capital without following Section 27?

Such alterations may be invalid, and the company and its officers may face penalties, including fines and possible director disqualification.

Does Section 27 apply to all types of companies?

Section 27 applies to all companies with share capital, including private and public companies, unless specifically exempted by law.