allotment of share in pvt. ltd

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CA YOGESH (Querist)
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20 October 2007 If a pvt. co. goes for allotment of its shares to other than existing member ( find by management after verablly refusal by existing member ) can be void if existing shareholder goes into court against the company

S.RAVICHANDRAN

S.RAVICHANDRAN (Expert)
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20 October 2007 The very fundamental concept of a private company is that it cannot issue shares to persons other than its members and exployees (both past and present ).

Thus the private company should not issue shares to persons other than existing members.

CA YOGESH

CA YOGESH (Querist)
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20 October 2007 a pvt. co. goes for allotment of its shares to other than existing member ( find by management after verablly refusal by existing member ) can be void if existing shareholder goes into court against the company

R.V.RAO

R.V.RAO (Expert)
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20 October 2007 AS RIGHTLY PUT BY SRI RAVICHANDRAN,SEC 3(1)(iii) restricts the right of transfer of shares.PL. NOTE THERE IS NO PROHIBITION. BUT IT IS ONLY A RESTRICTION OF TRANSFER TO OUTSIDERS. BUT FOR THIS RESTRICTION,THE PVT LTD. CHARACTER IS IN QUESTION.
A PVT. LTD. COMPANY'S ARTICLES SHALL PROVIDE TRANSFER OF SHARES TO AN OUSIDER ( OTHERTHAN EXISTING MEMBER) ONLY IF THE INSIDERS REFUSE SUCH OFFER TO BUY THE SAME.
COMPANY LAW BOARD IN THE CASE NAMED -ARUNA SURESH MEHRA v JIFCON TOOLS P. LTD-
1998- HELD THERE IS NOTHING WRIONG IF SUCH TRANSFER TO OUTSIDERS TAKE PLACE AFTER REFUSAL OF EXISTING MEMBERS.
IF NO SUCH TRANSFER TO AN OUTSIDER IS PERMISSIBLE UNDER THE ARTICLES WITHOUT BOARD APPROVAL,THEN THIS WOULD REQUIRE A WRITTEN RESOLUTION OF BOARD OF DIRECTORS.
(SUPREME COURT CASE-1997-)( JOHN TINSEN& CO P. LTD v mrs surjeet malhan).
so to conclude, in your case, first let there be a provision in the articles for transfer to an ousider on refusal by present members.then only offer or transfer to an outsider is a valid proposal as per CLB AND HON'BLE SUPREME COURT.
R.V.RAO

CA YOGESH

CA YOGESH (Querist)
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22 October 2007 i am asking about allotment of paid up capital not about the transfer

Srinath A. N.

Srinath A. N. (Expert)
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22 October 2007 Pvt. cannot allot shares to other than existing members unless existing members refuses for such allotment.

In your case, you are not having any proof that existing members refused for the allotment. Oral refusal will not hold water in court. In case the director and the shareholders are same, and the shareholer refused for allotment has participated in the board meeting alotting shares to out siders you can prove shareholder has given consent for allotment.

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