Pledge of shares

This query is : Resolved

deepali jain (Querist)
Follow

29 January 2014 I am pledging 29% shares of a promoter of a private limited company. what is the procedure for this. Is Splitting is possible of pledge and unpledged shares by issuing new share certificates.

deepali jain

deepali jain (Querist)
Follow

11 March 2017 please reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

10 August 2024 ### **Pledge of Shares in a Private Limited Company: Procedure and Considerations**

**1. Understanding Share Pledge:**
- **Pledge of Shares** involves transferring the shares as security for a debt. The shares remain in the name of the pledgor but are held by the pledgee (the lender) as collateral.
- In the case of a private limited company, the pledge must be registered with the company and comply with legal requirements to be enforceable.

**2. Procedure for Pledging Shares:**

**a. **Drafting the Pledge Agreement:**
- **Agreement:** Prepare a pledge agreement detailing the terms of the pledge, including the amount of debt secured, the number of shares pledged, and the terms of the pledge.
- **Signature:** This agreement must be signed by both the pledgor (shareholder) and the pledgee (lender).

**b. **Board Resolution:**
- **Approval:** The company’s board of directors must approve the pledge. This requires a board resolution authorizing the pledge of shares.
- **Meeting:** Schedule a board meeting and pass the necessary resolution.

**c. **Filing with the Company:**
- **Register of Pledges:** Notify the company of the pledge. The company should update its register of members and create an entry in the register of pledges (if maintained).

**d. **Delivery of Share Certificates:**
- **Physical Transfer:** The original share certificates representing the pledged shares must be delivered to the pledgee.
- **Endorsement:** Endorse the certificates in favor of the pledgee, or provide a declaration of pledge.

**e. **Modification of Share Certificate:**
- **New Certificates:** If splitting or issuing new certificates is required, follow these steps:
- **Board Approval:** Obtain board approval for issuing new share certificates.
- **New Certificates:** Issue new share certificates reflecting the new details.
- **Transfer Deed:** Execute a transfer deed if required by the company’s articles of association or as per statutory requirements.

**3. Splitting of Pledged and Unpledged Shares:**

**a. **Issuing New Share Certificates:**
- **Splitting:** If you want to split the pledged shares from the unpledged ones and issue new certificates, it is feasible, but the procedure requires:
- **Board Resolution:** Pass a resolution for splitting and issuing new certificates.
- **Old Certificate Surrender:** Surrender the old certificate to the company.
- **New Certificates:** Issue new certificates for pledged and unpledged shares separately.

**b. **Procedure:**
- **Notification:** Notify the company of the pledge and request the split of shares.
- **Documentation:** Provide necessary documentation, including the pledge agreement and any supporting resolutions or approvals.
- **Update Register:** Update the register of members to reflect the new status of shares and the pledge.

**4. Legal and Compliance Considerations:**

**a. **Compliance with Articles of Association:**
- **Check Rules:** Review the company’s articles of association for any specific provisions related to pledging and splitting of shares.

**b. **Regulatory Requirements:**
- **Legal Compliance:** Ensure compliance with relevant legal requirements under the Companies Act, 2013 or any other applicable regulations.

**c. **Recording with Registrar:**
- **ROC Filing:** Depending on jurisdiction, you may need to file the pledge with the Registrar of Companies (ROC) if required by law.

**5. Important Considerations:**

- **Rights of Pledgee:** Ensure the pledge agreement clearly defines the rights and obligations of both parties, including the rights of the pledgee in case of default.
- **Legal Advice:** Consider seeking legal advice to ensure all procedural and compliance aspects are correctly handled.

**Summary:**
- To pledge shares, you need a pledge agreement, board resolution, and updated share certificates.
- Splitting shares into pledged and unpledged categories is possible with proper board approval and issuance of new certificates.
- Follow legal and company-specific procedures to ensure proper documentation and compliance.

By adhering to these procedures, you can effectively pledge shares and manage the documentation and compliance aspects associated with the process.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now