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Class Rights Modification

Class Rights Modification

Class Rights Modification

Each class of share has specific rights mentioned in the Articles of Association or any other document that creates shares. Some examples of rights include dividend, the return of capital, voting responsibility, and any other similar rights. Any modification to the class rights must be approved by shareholders in a meeting named class meeting. A class meeting is a kind of meeting conducted by shareholders. Class meetings are held when it is proposed to vary the rights of particular shares. In some cases, modification of class rights could be held without a class meeting. In this article, let us look at modification of class rights without holding a class meeting.

Board Resolution

Modification of class rights could be done without holding a class meeting if around 3 fourth of the issued shareholders of the particular class provide their written consent. A board meeting would be called for and the scheme for variation would be placed before the board. The board will have to pay the following resolutions:

  • To approve the proposal of variation of rights
  • To approve the draft circular setting out the scheme of variation of right
  • Letter of consent needs to be obtained from the members holding the shares of the concerned class
  • The board will fix a record date or the period of closure of the register of members and share transfer books.
  • The board would authorize the company secretary or any other director or officer of the company to forward a circular and consent letter to the shareholders on the dates fixed by the board.
  • The board would further fix a date as the last date of receipt of the consent letter back from the shareholders.
  • The board would then constitute a committee of directors/officers to scrutinize the letters of consent received from the members.

Circulars and Consent Letters

The circular will detail the scheme of modification of rights. A circular will be sent to the list of shareholders with reference to the inputs of the class meeting. The shareholders, in turn, would send the letter of consent within the due date fixed by the board.

Shareholders’ Register

The register of shareholders would have the list of members to whom the circular need to be sent. It must comply with the SEBI regulations of Listing, Obligations and Disclosure Requirement. In case of a listed company which provides issuance of shares, meetings of such nature must be intimated to SEBI within 24 hours of its occurrence.

Scrutiny of Consent Letter

Once the last date to receive the consent letter has been fixed by the Board, it would be scrutinized and a report would be prepared and presented to the Board. This would in turn submitted to the chairman of the Board.

Board Meeting

A board meeting needs to be convened to place the report of the committee before the board. The board will pass necessary resolutions. If the variation of rights has been consented by the shareholders who hold issued shares of around 3 fourth, then the same needs to be formally intimated via a circular and the class rights modification would be effected.