Issue of Shares by a Newly formed Private Limited Company

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A newly formed Private Limited Company can indeed issue shares to outsiders. This can be done through a private placement under Section 42 of the Companies Act, 2013, offering shares to a select group of individuals (up to fifty, excluding QIBs and employees under ESOPs). Alternatively, under Section 62, shares can be issued via a rights issue to existing shareholders, their employees, or other persons, subject to specific conditions and resolutions.

Basua

Basua (Querist)
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12 October 2022 Can a newly formed Private Limited Company issue shares to outsiders? Please state the process and compliances to be followed?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 October 2022 Private companies may issue share and have shareholders, but their shares do not trade on public exchanges and are not issued through an initial public offering (IPO).

Basua

Basua (Querist)
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15 October 2022 What would be the steps as per company law?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 October 2022 Issue of Private Limited Company Shares via Private Placement
A firm can make a private placement to a small group of people under Section 42 of the Companies Act, 2013. A private placement offer letter is a letter in which a company offers its shares or invites a select group of people to subscribe to its securities in lieu of a public offering.

In a financial year, the number of persons to whom the firm can make a private placement should not exceed fifty or such a greater number as the Rules require. Qualified institutional buyers and employees of the company who are offered securities in the financial year under a scheme of employees’ stock options under Section 62 of the Act are not included in the fifty-person limit.

KNOW THE BENEFITS OF SHARE TRANSFER

Issue of Private Limited Company Shares via Rights Issue
According to section 62 of the Act, whenever a corporation with a share capital seeks to enhance its subscribed capital by issuing more shares, those shares must be offered—

to its existing investors’
employees under a stock option scheme, subject to a special resolution passed by the company
if the price of such shares is determined by the valuation report of a registered valuer, to any persons, whether or not those persons include the persons referred to in clauses (a) or (b), for cash or for a consideration other than cash, if it is authorised by a special resolution.

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