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Internal Reconstruction

Internal reconstruction involves reorganizing a company's financial structure through alterations or reductions in share capital, typically to address accumulated losses. It requires court approval and differs from external reconstruction, amalgamation, and absorption, as no new company is formed and no liquidation occurs. The two primary methods are alteration of share capital and reduction of share capital, with the latter aimed at writing off losses and unrepresented assets.

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21 views

Internal Reconstruction

Internal reconstruction involves reorganizing a company's financial structure through alterations or reductions in share capital, typically to address accumulated losses. It requires court approval and differs from external reconstruction, amalgamation, and absorption, as no new company is formed and no liquidation occurs. The two primary methods are alteration of share capital and reduction of share capital, with the latter aimed at writing off losses and unrepresented assets.

Uploaded by

salmasafar9656
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTERNAL

RECONSTRUCTIO
N
Module - 3
• Internal reconstruction refers to the internal reorganisation of the
financial structure of company It is the internal reorganisation either by
alteration or by reduction in share capital.
• Reconstruction by alteration of share capital is effected by increasing
the share capital, consolidating or subdividing the shares, cancellation
of unissued shares etc. Internal reconstruction by reduction in share
capital is the cancellation of any paid-up share capital which is lost or
unrepresented by available assets
• Internal reconstruction usually means capital reduction/Under the
scheme, the paid-up share capital is reduced with the sanction of the
court the amount of debentures and creditors are reduced with their
permission and the amount is utilised to write off the accumulated losses
and fictitious assets of the company.
Procedure for internal
reconstruction
• SEC 100 to 105
• A company can reduce its share capital only if the Articles of
Association permit it and special resolution is passed to that effect.
• The company must apply to the court for an order confirming the
capital reduction.
• The order of the court confirming the reduction must be placed
before the Registrar of Joint Stock Companies and a certified copy
of the order and the minutes of the reduction must be filed with the
Registrar for registration.
Distinction between Internal and
external reconstruction
• In external reconstruction, an existing company is
liquidated, But, in the case of internal reconstruction no
company is liquidated.
• In the case of external reconstruction a new company is
formed But in internal reconstruction, no new company is
formed.
Internal Reconstruction Vs.
Amalgamation
• In amalgamation, at least two companies are liquidated,
whereas, in internal reconstruction, no company is
liquidated.
• In the case of amalgamation a new company is formed to
take over the business of the amalgamating companies.
But, in internal reconstruction no new company is formed.
• Amalgamation is a case of combination; whereas internal
reconstruction is only a reorganisation
Internal Reconstruction Vs. Absorption

• In absorption, one company is liquidated; while, there is


no liquidation in internal reconstruction
• Absorption is a case of combination, where as internal
reconstruction is a case of alteration and reduction of
capital.
Methods of Internal Reconstruction

• There are two methods of internal reconstruction:


• 1. Alteration of share capital
• 2. Reduction of share capital
1. Alteration of share capital Alteration of share capital means changing the
composition of share capital of a company. It does not require approval of
the court. It has been stated under sections 61 to 64 of the Companies Act,
2013.Following are different ways in which share capital can be altered:

• Increase the share capital by issue of new shares.


• Sub-divide the shares of larger denomination in to shares of
smaller denomination.
• Consolidate the shares of smaller denomination in to shares
of larger denomination.
• Convert the fully up shares in to stock or reconvert stock in
to fully paid up shares.
• Cancel the unissued shares.
Reduction of share capital

• Reduction of share capital is the cancellation of any paid


up share capital which is lost or unrepresented by
available assets. It includes the writing off lost capital,
refunding surplus paid up capital and reducing liability of
the members for un called capital. This is actually
resorted to write off the past accumulated losses and
intangible assets of the company. Virtually, internal
reconstruction means capital reduction.

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