Takeover of shares- pvt. ltd. company
This query is : Resolved
20 November 2015
Can any one please help me to solve this.
Case:
AB Pvt. Ltd company is owned by 2 family groups.
A & Family Group: 76% Shareholding
B & Family group: 24% shareholding
AB Pvt. Ltd company having Plastic film manufacturing business with plant, machine, workers, bank loans .
But over the time business is incurring losses because of ignorance by senior management.
Promoter & Directors of Family A and B are blaming each other for the ignorance. There is no proper control of on management.
To get rid of this Group A family (76%) wants to sell the Pvt Co. to C & family (Third party)
Third party C & family is established one and is in the same line of business for years and can very well take care of this business to safeguard interest of its employees and other stakeholders.
Third party C & family wants 100% control over company to run business smoothly with proper control.
But B family group is opposing and they are not willing to sell their 24% shares.
A & Family is a genuine and wants to handover business in proper hands.
But Family B is deliberately wants deal not to happen due to family rivalry.
What is remedy for A group to sell the Business (100% shares and other assets and liabilities) to Mr. C & Group (Third party)
Kindly advice what remedy A & Group have.
Can any one please help me to solve this.
Case:
AB Pvt. Ltd company is owned by 2 family groups.
A & Family Group: 76% Shareholding
B & Family group: 24% shareholding
AB Pvt. Ltd company having Plastic film manufacturing business with plant, machine, workers, bank loans .
But over the time business is incurring losses because of ignorance by senior management.
Promoter & Directors of Family A and B are blaming each other for the ignorance. There is no proper control of on management.
To get rid of this Group A family (76%) wants to sell the Pvt Co. to C & family (Third party)
Third party C & family is established one and is in the same line of business for years and can very well take care of this business to safeguard interest of its employees and other stakeholders.
Third party C & family wants 100% control over company to run business smoothly with proper control.
But B family group is opposing and they are not willing to sell their 24% shares.
A & Family is a genuine and wants to handover business in proper hands.
But Family B is deliberately wants deal not to happen due to family rivalry.
What is remedy for A group to sell the Business (100% shares and other assets and liabilities) to Mr. C & Group (Third party)
Kindly advice what remedy A & Group have.
23 November 2015
It is very difficult to sell Family B's shares to Family C. Shares are property for Family B. There are no laws in India which can force a person to sell its property without their consent.
Unless you get the consent of Family B, you won't be able to sell 24% shares held by Family B.
Unless you get the consent of Family B, you won't be able to sell 24% shares held by Family B.
01 December 2015
If A& Family could increase its shareholding more than 90% and sell the company under scheme of amalgamation to take over all the business by C& co. (Third party) can this be solution?
A & family can increase the shareholding by purchasing more shares by way of right issue.
In that case if shareholding can reach more than 90%, B & family being dissenting shaeeholders (less than 10%) have to have sell the shares.
Is this feasible. Kindly advise.
A & family can increase the shareholding by purchasing more shares by way of right issue.
In that case if shareholding can reach more than 90%, B & family being dissenting shaeeholders (less than 10%) have to have sell the shares.
Is this feasible. Kindly advise.
01 December 2015
If A& Family could increase its shareholding more than 90% and sell the company under scheme of amalgamation to take over all the business by C& co. (Third party) can this be solution?
A & family can increase the shareholding by purchasing more shares by way of right issue.
In that case if shareholding can reach more than 90%, B & family being dissenting shaeeholders (less than 10%) have to have sell the shares.
Is this feasible. Kindly advise.
A & family can increase the shareholding by purchasing more shares by way of right issue.
In that case if shareholding can reach more than 90%, B & family being dissenting shaeeholders (less than 10%) have to have sell the shares.
Is this feasible. Kindly advise.
26 July 2025
This is a common deadlock and minority shareholder issue in closely-held private companies. Let me clarify the legal position and practical remedies available to Family A, based on Indian Company Law:
---
### 1. **No Forced Sale of Shares by Minority Shareholders**
* Shares are the property of the individual shareholders.
* Family B (holding 24%) **cannot be forced** to sell their shares against their will.
* There is **no law** that compels a shareholder to sell shares without consent.
---
### 2. **Increasing Shareholding Beyond 90%: Squeeze-out Possibility**
* If Family A increases their shareholding to **90% or more**, they can invoke the **squeeze-out rights** under the Companies Act, 2013.
* **Section 236** of the Companies Act, 2013 provides for **compulsory acquisition of minority shares** if an acquirer holds **90% or more** of the company’s shares.
* **How to increase shareholding?**
* By subscribing to a **fresh issue of shares** (Right Issue or Preferential Allotment), diluting Family B's stake below 10%.
* Family B’s stake will get reduced and become minority below 10%.
* Once >90% is reached, Family A (or Family A + Third party C) can compulsorily acquire remaining shares from Family B.
* This would mean Family B must **sell their shares at a fair price** determined under the law.
---
### 3. **Is the Right Issue Route Feasible?**
* For the right issue/preferential allotment, the company’s **Articles of Association (AoA)** and the **Companies Act** procedural requirements need to be followed.
* Family B, as shareholders, will have **pre-emptive rights** unless waived. So Family B could subscribe proportionately to maintain their stake.
* However, if Family B refuses to subscribe to new shares, their percentage holding dilutes automatically, helping Family A cross 90%.
* **Practical issues:**
* Capital infusion needed for fresh shares.
* Family A needs to have funds or support of Third party C for funding.
* Legal and regulatory compliance including board and shareholder approvals.
---
### 4. **Scheme of Amalgamation / Arrangement**
* Family A can approach the **National Company Law Tribunal (NCLT)** for a scheme of amalgamation or arrangement with Third party C’s company.
* Under a scheme, **minority dissenters can be bound** if the NCLT approves the scheme, after considering objections.
* But this generally requires a strong case and acceptance of fair valuation for minority shareholders.
---
### 5. **Other Practical Remedies**
* **Negotiation:** Try to convince Family B with better buyout offers or alternative deals.
* **Mediation/Arbitration:** If shareholders’ agreement or AoA have dispute resolution mechanisms, use them.
* **Buyout clause in AoA/Shareholders Agreement:** Check if any such clause allows buyout or drag-along rights.
* **Exit routes for Family A:** Sell their shares to Third party C and allow new controlling group to negotiate with Family B.
---
### **Summary**
| Point | Explanation |
| --------------------------------------------------- | ------------------------------------------------------------------------------------------ |
| Can Family A force Family B to sell shares? | No, shares are property, cannot force sale without consent. |
| Can Family A increase stake to >90%? | Yes, via fresh issue (right/preferential), diluting Family B. |
| Can Family A squeeze out Family B after >90% stake? | Yes, as per Section 236 Companies Act, minority shareholders can be compulsorily acquired. |
| Is scheme of arrangement a solution? | Possible via NCLT approval, but complex and requires fair valuation. |
| Other options | Negotiation, mediation, check shareholders agreement for clauses. |
---
### **Recommendation**
1. Family A should explore increasing stake beyond 90% via fresh issue or preferential allotment (after checking AoA and legal compliances).
2. Once >90% threshold is achieved, initiate squeeze-out to compulsorily acquire Family B’s shares.
3. Alternatively, negotiate buyout or use mediation/arbitration if available.
4. Consult a corporate lawyer for drafting the share issue, valuation, and NCLT proceedings if scheme route is planned.
---
If you want, I can help you draft the legal and procedural steps for these options. Would you like that?
---
### 1. **No Forced Sale of Shares by Minority Shareholders**
* Shares are the property of the individual shareholders.
* Family B (holding 24%) **cannot be forced** to sell their shares against their will.
* There is **no law** that compels a shareholder to sell shares without consent.
---
### 2. **Increasing Shareholding Beyond 90%: Squeeze-out Possibility**
* If Family A increases their shareholding to **90% or more**, they can invoke the **squeeze-out rights** under the Companies Act, 2013.
* **Section 236** of the Companies Act, 2013 provides for **compulsory acquisition of minority shares** if an acquirer holds **90% or more** of the company’s shares.
* **How to increase shareholding?**
* By subscribing to a **fresh issue of shares** (Right Issue or Preferential Allotment), diluting Family B's stake below 10%.
* Family B’s stake will get reduced and become minority below 10%.
* Once >90% is reached, Family A (or Family A + Third party C) can compulsorily acquire remaining shares from Family B.
* This would mean Family B must **sell their shares at a fair price** determined under the law.
---
### 3. **Is the Right Issue Route Feasible?**
* For the right issue/preferential allotment, the company’s **Articles of Association (AoA)** and the **Companies Act** procedural requirements need to be followed.
* Family B, as shareholders, will have **pre-emptive rights** unless waived. So Family B could subscribe proportionately to maintain their stake.
* However, if Family B refuses to subscribe to new shares, their percentage holding dilutes automatically, helping Family A cross 90%.
* **Practical issues:**
* Capital infusion needed for fresh shares.
* Family A needs to have funds or support of Third party C for funding.
* Legal and regulatory compliance including board and shareholder approvals.
---
### 4. **Scheme of Amalgamation / Arrangement**
* Family A can approach the **National Company Law Tribunal (NCLT)** for a scheme of amalgamation or arrangement with Third party C’s company.
* Under a scheme, **minority dissenters can be bound** if the NCLT approves the scheme, after considering objections.
* But this generally requires a strong case and acceptance of fair valuation for minority shareholders.
---
### 5. **Other Practical Remedies**
* **Negotiation:** Try to convince Family B with better buyout offers or alternative deals.
* **Mediation/Arbitration:** If shareholders’ agreement or AoA have dispute resolution mechanisms, use them.
* **Buyout clause in AoA/Shareholders Agreement:** Check if any such clause allows buyout or drag-along rights.
* **Exit routes for Family A:** Sell their shares to Third party C and allow new controlling group to negotiate with Family B.
---
### **Summary**
| Point | Explanation |
| --------------------------------------------------- | ------------------------------------------------------------------------------------------ |
| Can Family A force Family B to sell shares? | No, shares are property, cannot force sale without consent. |
| Can Family A increase stake to >90%? | Yes, via fresh issue (right/preferential), diluting Family B. |
| Can Family A squeeze out Family B after >90% stake? | Yes, as per Section 236 Companies Act, minority shareholders can be compulsorily acquired. |
| Is scheme of arrangement a solution? | Possible via NCLT approval, but complex and requires fair valuation. |
| Other options | Negotiation, mediation, check shareholders agreement for clauses. |
---
### **Recommendation**
1. Family A should explore increasing stake beyond 90% via fresh issue or preferential allotment (after checking AoA and legal compliances).
2. Once >90% threshold is achieved, initiate squeeze-out to compulsorily acquire Family B’s shares.
3. Alternatively, negotiate buyout or use mediation/arbitration if available.
4. Consult a corporate lawyer for drafting the share issue, valuation, and NCLT proceedings if scheme route is planned.
---
If you want, I can help you draft the legal and procedural steps for these options. Would you like that?
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