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cs.silky (Querist)
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07 January 2012
dear all

Kindly advise me on the following query

P ( a public ltd co.) wants to invest in the equity shares of L ( a pvt ltd co.) . Both are group companies. L has almost 17% equity shares lying unissued. Now the management has decided to acquire shares in L ltd. so what percentage of shares should P acquire and what factors should be kept in mind while deciding the consideration of Shares.( Both are unlisted companies)

Charu Srivastava

Charu Srivastava (Expert)
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07 January 2012 If the shares acquired and to be acquired is more than 50%, then l will become the subsidiary of P.

I guess there is no restriction as to investment.

other views are solicited..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Got it! Here's a clear guide on your query about company **P (public ltd)** investing in **L (private ltd)**, where **L has 17% unissued equity shares** and both are group companies:

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### Key points on Share Acquisition & Consideration:

#### 1. **Percentage of Shares P should Acquire:**

* Since **L has 17% unissued shares**, P can subscribe to some or all of these shares if fresh issue is allowed as per L’s Articles of Association and board/shareholder approval.
* Alternatively, P can acquire existing shares from the current shareholders of L.
* **Decide on the target ownership percentage** considering:

* Control & influence desired over L.
* Regulatory/compliance limits on shareholding for both companies.
* Capital requirements and valuation.

Example:
If P wants to increase stake from zero to, say, 25%, it can subscribe to a portion of the 17% unissued shares **plus** buy some from existing shareholders if needed.

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#### 2. **Factors to Consider While Deciding Consideration of Shares:**

* **Valuation of L:**
Get a proper valuation done (by a registered valuer) to decide the **fair market value (FMV)** of shares since both companies are unlisted. Factors affecting valuation:

* Net asset value (NAV)
* Earnings potential and profitability
* Industry outlook
* Market conditions

* **Pricing Method:**
Consider methods such as:

* Net Asset Value method
* Discounted Cash Flow (DCF) method
* Comparable company analysis

* **Legal & Regulatory compliance:**

* Pricing should comply with **Companies Act, SEBI (if applicable), and Income Tax rules** (e.g., transfer pricing if related parties).
* Issue of shares at a price below FMV can attract penalties or tax implications.
* Approval from Board of Directors and Shareholders of both companies as per their Articles of Association.

* **Rights & Restrictions attached to Shares:**
Confirm if the shares to be issued have same rights as existing shares or if there are any preferential rights, voting rights, etc.

* **Group Company Considerations:**
Since both are group companies, transfer pricing rules and arm’s length valuation must be adhered to avoid tax complications.

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### Summary:

* **Decide target ownership %** based on strategic/business objectives and available unissued shares.
* **Get a professional valuation done** for fair pricing.
* Ensure **compliance with Companies Act and tax laws**.
* Obtain all necessary **approvals** and document the transaction properly.

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If you want, I can help you draft an outline for valuation or share transfer agreement or suggest how to proceed with approvals. Would that help?

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