Identify the conversion and the restricted amount
Companies Act section 65 concerns an unlimited company with share capital that resolves to register as a limited company. When it resolves to register as limited, it may take either or both steps: increase the nominal amount of its shares so that the increment is callable only for winding up, and designate a specified portion of existing uncalled capital as callable only for winding up. These amounts do not supply ordinary working capital.
Read the applicable text: Companies Act, 2013, sections 18 and 65 MCA webform INC-27 instruction kit.
Keep the two statutory sources separate
Build a class-wise table of shares, nominal value, paid-up value and uncalled amount before conversion. Identify any existing uncalled amount designated under section 65(b) separately from the nominal increment under section 65(a). The existing portion cannot exceed existing uncalled capital. Where both are used, add the distinct components once; do not designate the same nominal increase twice.
Tie the resolution to the conversion documents
Use the same per-share and aggregate amounts in the resolution and altered charter documents, with clear language describing the winding-up restriction. Section 18 addresses conversion through alteration of the memorandum and articles, Registrar registration and issue of the certificate. MCA's INC-27 instruction kit covers conversion of an unlimited liability company to a company limited by shares or guarantee; select the applicable route and verify current attachments and conditions before filing. This article assumes conversion to a company limited by shares. Rule 37 requires a special resolution in general meeting and an INC-27 application. Check its separate notice, objection and eligibility requirements before relying on any conversion date.
Keep existing obligations and available funding visible
Section 18(3) preserves debts, liabilities, obligations and contracts incurred or entered into before conversion. The conversion itself does not bring in cash or pay an existing creditor. Reconcile the restricted amount separately from ordinary uncalled amounts, and test any later proposed call against the charter and applicable law.
Distinguish reserve share capital from accounting reserves
A restriction on calling nominal share capital is not a capital redemption reserve or retained earnings balance. Maintain the shareholder-level working and link any disclosure to the actual capital and conversion records. Resolve discrepancies before registering the change rather than using a general-ledger journal to create legal share capital.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Nominal increment only
A company has 20,000 shares at ₹10 nominal, fully paid. It increases nominal value to ₹12 per share under section 65(a). The ₹40,000 increase is winding-up-only; paid-up capital stays ₹2 lakh and nominal capital becomes ₹2.4 lakh.
Illustrative example 2: Designation of existing uncalled amounts
There are 50,000 shares of ₹10 nominal, ₹7 paid. Existing uncalled capital is ₹1.5 lakh. If ₹2 per share is designated under section 65(b), ₹1 lakh is restricted and ₹50,000 remains outside this restriction.
Illustrative example 3: Use both methods without overlap
On 10,000 shares of ₹10 nominal and ₹6 paid, add ₹3 nominal per share and designate ₹2 from existing uncalled value. Restricted capital is ₹50,000, ordinary uncalled capital ₹20,000 and total uncalled capital ₹70,000.
Illustrative example 4: Excess designation detected
There are 8,000 shares with ₹2 existing uncalled per share. A draft designates ₹3 per share solely under section 65(b). Available existing uncalled capital is ₹16,000 versus the draft ₹24,000, leaving ₹8,000 unsupported.
Illustrative example 5: Class-wise reconciliation
Assume 12,000 affected Class A shares carry ₹1 restriction each and 8,000 affected Class B shares carry ₹2 each under supported terms. The restricted total is ₹28,000; confirm rights and approvals independently.
Illustrative example 6: Ordinary-call availability
A reviewed working shows ₹2 lakh total uncalled capital, including ₹1.25 lakh winding-up-only. Only ₹75,000 is outside this particular restriction; it does not follow that all of it is immediately callable. Check the charter, issue terms and lawful call authority.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Verify the existing company status | Certificate and charter |
| 2 | Confirm the intended conversion | Board papers and resolution plan |
| 3 | Reconcile each class | Register, nominal and paid amounts |
| 4 | Compute existing uncalled capital | Shareholder-level working |
| 5 | Record the nominal increase | Section 65(a) schedule |
| 6 | Identify existing restricted portions | Section 65(b) schedule |
| 7 | Reconcile distinct components | Before-and-after capital table |
| 8 | Check the conversion submission | Altered charter and applicable INC-27 evidence |
| 9 | Confirm legal completion | Registrar certificate and final register |
| 10 | Review later call restrictions | Treasury controls and winding-up-only record |
Sixteen practitioner FAQs
1. Who can use section 65?
An unlimited company having share capital in the specified conversion context.
2. Is the section compulsory in every conversion?
No. On the specified conversion, section 65 permits either or both steps.
3. What does clause (a) restrict?
The entire nominal increase made under that clause.
4. What does clause (b) address?
A specified part of existing uncalled capital.
5. Can both routes be used?
Yes, keep their amounts separate.
6. Can existing paid-up amounts be designated under clause (b)?
That clause concerns uncalled amounts.
7. Does nominal value increase mean cash was received?
No. Reconcile actual paid-up capital separately.
8. Is restricted capital callable for a normal cash shortage?
No. The statutory restriction is for winding up.
9. Does an INC-27 draft complete conversion?
Check the applicable filings, registration and certificate.
10. Do existing contracts disappear?
Section 18(3) preserves pre-conversion obligations and contracts.
11. Is this the capital redemption reserve?
No. It is a restriction on calling capital.
12. How do multiple classes affect the working?
Reconcile by class and assess applicable rights and approvals.
13. Can the same capital be counted under both clauses?
Do not count the same restricted amount twice.
14. Is a treasury forecast enough to establish available capital?
Use the legal capital and call authority records.
15. How should a discrepancy be corrected?
Align the underlying resolution and charter evidence before relying on the filing.
16. Which documents should the finance team retain?
The resolution, charter, conversion proof and reconciled shareholder schedule.
Official sources
Companies Act, 2013, sections 18 and 65 MCA webform INC-27 instruction kit
MCA: Companies (Incorporation) Third Amendment Rules, 2016, Rule 37