MODULE 3

INTERNAL RECONSTRUCTION

PART A

1. What do you mean by subdivision of share capital?

Sub division means Sub-divide the shares of larger denomination in to shares of
smaller denomination.
2. What is reorganization of capital?
Reorganisation means to reconstruct the capital structure of the company through
alteration or reduction of share capital.
3. State the various ways in which internal reconstruction can be carried out?
There are two methods of internal reconstruction:
o Alteration of share capital

o Reduction of share capital

4. What is alteration of share capital?
Alteration of share capital means changing the composition of share capital of
company. It does not require approval of the court.
5. What do you mean by internal reconstruction?
Internal reconstruction means the reorganisation of the existing financial structure of a
company without forming a new company. It includes alteration of share capital,
reduction of share capital, variation of shareholders' rights and scheme of compromise
or arrangement. It is generally resorted to write off past accumulated losses, fictitious
assets and intangible assets by a scheme of capital reduction.
6. Difference between consolidation and subdivision of share capital
Consolidate the shares of smaller denomination in to shares of larger denomination.
Sub-divide the shares of larger denomination in to shares of smaller denomination.

PART B
7. What is internal reconstruction? Explain the procedure for internal reconstruction.
 There should be a provision in the Articles of Association of the company for
reduction of share capital.
 The company must pass a Special Resolution for reduction of share capital
 An application must be made by the company to the Tribunal/Court for an
order confirming reduction of capital.
 The order of confirmation for the reduction of share capital by the Tribunal
shall be published by the company in such a manner as the Tribunal may
direct.
 The order of the Tribunal confirming the reduction of share capital must be
produced before the Registrar of Companies within 30 days of the receipt of
the copy of the order. The minutes of capital reduction should also be filed
 with the Registrar for registration, who in turn will issue a certificate to that
effect.
8. Distinguish between internal reconstruction and amalgamation?
 In internal reconstruction, there is no liquidation; where as in amalgamation least
two existing companies are liquidated.
 In internal reconstruction, there is no formation of a new company. But in case of
amalgamation, a new company is formed to take over the business of the
amalgamating companies (Transferor or vendor companies)
 Internal reconstruction means the reorganisation of the capital structure of a
company; whereas amalgamation is a type of combination.