Updated : September 02, 2024How to Change Shareholding Pattern in Private Limited Company?
Overview : Embracing and handling changes in the shareholding pattern of a private limited company can help keep pace with the latest industry norms and ensure growth by attracting more capital for business expansion or entering new verticals or markets. The blog emphasizes on the responsible factors and procedures for shareholding pattern change ensuring seamless execution of shareholding change which may result in better business growth.
In the realm of business, change is an indispensable part that helps in keeping pace with the dynamic business environment. Whether it’s due to the implementation of new strategies, introduction of new investments, or succession planning, change in shareholding patterns in a private limited company is so common these days.
Navigating the process of change of shareholding pattern requires careful consideration of legal, regulatory, and procedural aspects. The blog will help you dig deeper into the intricacies of changing the shareholding pattern in a private limited company and provide a brief guide for the stakeholders involved.
Shareholding Pattern: An Introduction
Before moving ahead to the process of changing the shareholding pattern, it’s essential to grasp what ‘Shareholding Pattern’ means! The shareholding pattern refers to the distribution of shares among shareholders with certain details such as the number of shares different shareholders own and their corresponding percentage of ownership. It is pivotal information for investors, regulators, and stakeholders to comprehend the ownership structure and its implications on decision-making as well as control within the company.
Reasons for Change in Shareholding Pattern of Private Limited Company
Several factors may be responsible for considering a change of shareholding in a private limited company. It may include;
Raising of Authorised Capital
Authorised Capital of a company is the limit till which capital can be raised in a company. In case fresh shares are being issued and the authorised capital is already consumed, then first of all, the company has to increase its authorised capital to accommodate fresh allotment / Issue of shares. There is some nominal fee which has to be paid to the central government and stamp duty needs to be paid on the increased share capital of the company.
Allotment of Fresh Shares
In a private limited company shares can be allotted up to 200 persons without seeking any kind of approval from the government. However, the existing shareholders have the first right to purchase such fresh allotment/issue of shares. The shares can be allotted by the board of directors meeting. The return of allotment needs to be filed with the government of India within 15 days of such allotment. After the allotment of shares, the share certificate must be issued within 60 days.
Transfer of Shares
Shares can be transferred between two consenting persons. There is a prescribed share transfer form which needs to be filled, and signed by the transferor and transferee in the presence of a witness. The share transfer form along with the original share certificate must be sent to the registered address of the company for necessary alteration in the register of members and share transfer register. The company shall be issuing fresh share certificates to new shareholder/shareholders.
Transmission of Shares
Upon the death of a shareholder of the company, the legal heirs are entitled for the transfer of shares in their name. However, in case the shareholder had nominated some other person then that other person is entitled for the shares. The transmission request must be presented to the company along with the court order or will which has been probated in the court.
Buy-Back of Shares
The company can buy back its own shares from the shareholders against a consideration which should not be less than the valuation of shares. The consideration for such buyback must be paid from free general reserves. Thus, only a profit-making company can buy back its own shares. The consideration amount which has to be paid to the shareholders in a scheme of Buy-Back must be deposited in a separate bank account opened for this purpose only.
Key Steps Involved in Shareholding Pattern Change
Certain steps need to be followed for the alteration of shareholding pattern. Those include;
- Board Approval: Any proposed change to the shareholding pattern requires approvals from the company’s board of directors. A board meeting should be held to discuss and authorize the changes to comply with the company’s strategic objectives and legal obligations.
- Share Transfer Agreement: Once the board approves the change in shareholding pattern, a Share Transfer Agreement is executed between the transferring and acquiring shareholders. This agreement outlines the terms and conditions of the share transfer, also including the number of shares to be transferred, consideration, and warranties & representations.
- Shareholders’ Approval: Depending on legal obligations and provisions outlined in the company’s Articles of Association (AOA), shareholders’ approval may be required in case of certain types of share transfers or changes in shareholding patterns. Shareholders are notified of such proposed changes and are given the opportunity to vote on the resolution at a general meeting.
- Regulatory Compliance: Regulatory compliances are required to be fulfilled to smoothly change the shareholding pattern. According to the jurisdiction and nature of the changes, filings may be required with regulatory authorities including the Registrar of Companies or Securities and Exchange Commission.
- Company’s Records Updation: Post completion of the change in shareholding pattern, corporate records including the Register of Members and share certificates, need updation to reflect the revised shareholding pattern accurately. It helps ensure transparency and compliance with legal and regulatory obligations.
Conclusion
Change in shareholding patterns in a private limited company is a structured process that requires careful planning, diligent execution, and adherence to several legal and regulatory requirements. Following the aforementioned steps under legal guidance can ensure a seamless change of shareholding in a private limited company while protecting the interests of all stakeholders involved. Seeking professional guidance is always advisable.
