Sale of Shares of Pvt Company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 January 2010
Whether the shares of unquoted companies (Pvt Company) can be traded at any values.

Is there any restrictions on the sale price of shares of a Pvt Company to any other company ?

Suppose if A company buys shares of B company at Rs 100 and there after A company sells those shares to C company at Rs 150 per share, is there any legal voilation , if there kindly mention and provide me a solution also.

Ankur Garg

Ankur Garg (Expert)
Follow

21 January 2010 Procedure for transfer of shares of private company

Generally articles contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:â€”

(i) Transferor should give a notice in writing for his intention to transfer his share to the company.

(ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.

(iii) Such price is generally determined by the directors or the auditors of the company.

(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.

If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.

It is to be noted that any transfer of shares to an outsider without complying with the procedure as specified in the articles for effecting transfer of shares will not be operative against the company. Even in the case where the procedure prescribed by the articles was not followed and such failure was not due to any fault on the part of the selling shareholder, the transfer to an outsider was held not to be effective.

Valuation for consideration for transfer of shares of a private company

Usually, Articles of a private company provides that the shares are to be sold under pre-emption clause at a fair price determined by directors or the company's auditors. It may also be provided that the fair price would be certified by the company's auditors.

If the pre-emption clause requires that the shares are required to be offered to other members at a price certified by the directors or auditors, the Courts are not in a position to enquire into the correctness of valuation, unless there is evidence that valuation was not correctly made. If the person who made the valuation has acted negligently and failed to take into account all the necessary factors for arriving at the value of shares, in such case the transferor may sue for damages to the person who made the valuation for difference between the value of the share, as computed by the valuer, and the real value of shares.

The Company Law Board/Tribunal ordinarily do not interfere with the valuation made by experts. Therefore, if valuation is challenged then there must be sufficient evidence in support to show that valuation is improper.

Querist : Anonymous

Querist : Anonymous (Querist)

21 January 2010 Suppose if I buy shares at 10 ruppes of a company and thereafter if i am selling the same to another person for Rs 60, whether any voilation is there.

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