Urgent

Save Share

This query is : Resolved

cs.silky (Querist)

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)

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 online

Aashok Kumar Sharma

(Expert)

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:

---

### 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.

---

#### 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.

---

### 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.

---

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?

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