About issue of shares in a pvt ltd company

Pvt ltd 877 views 4 replies

yashsr

2285 Points Joined April 2011

Hello,

A Pvt Ltd Company exists with Rs.1 lac Capital(1000 Equity shares of Rs.100 each). There are 2 Directors(both brothers) and both of them are the only shareholders of the company with 500 Equity shares each.

They've come up with an idea for a huge project. The idea is so good that a couple of investors are willing to put money in the Company provided they get a stake in the profits(i.e. they do not want to show it as a loan). The fact is that the 2 original promoters/directors/shareholders will contribute their 'idea' whereas 2 new investors will contribute 'money'. The profits/losses shold be shared 1:1:1:1(or something like 25.5:25.5:24.5:24.5) among the 4 people since the original directors wish to claim 51% profits and stake.

Now, what are the different alternatives under the Companies Act to show the same?

Replies (4)

umaa's legal clinic

simple solutions for complex legal issue

165 Points Joined October 2008

Dear Yashsr,

1. A company registered under the companies act and having share capital shall distribute profits only in the form of dividends.

2.Losses may be shared only in the case of winding up of the company to the extent of shareholders' liability to contribution.

3. Best option to your case would be the fresh issue of shares under section 86(a)(ii) of the companies act, with differential rights as to dividends.

yashsr

2285 Points Joined April 2011

Originally posted by : UMA DEVI

Dear Yashsr,

3. Best option to your case would be the fresh issue of shares under section 86(a)(ii) of the companies act, with differential rights as to dividends.

Thanks! Please elaborate on this section.

Also what if I do the following in my original question:

Issue 49% shares to the investors at face value i.e. Rs.49000 total. In lieu of the idea of the original promoters, the new directors give Rs.2 Crores of interest free loan to the Company. Could there be an issue with interest free loans?

umaa's legal clinic

simple solutions for complex legal issue

165 Points Joined October 2008

Dear Yashsr,

Let us put a simple question: Does anybody give loan of 2 crores interest free to a company having share capital of Rs.1,00,000/-? What would be the agreement underlying.

If I assume that the company has wealthy balance sheet which can attract others to lend such huge amounts interest free then what is the need of borrowings? The company may utilise its existing reserves and fixed assets to finance such a project.

CS MOHIT SALUJA

PRACTICING CS Jalandhar 9914558709

5155 Points Joined April 2010

Yes the 49% shares can be transferred to teh other investors so that the share holding becomes 51% between original shareholders and 49% amonget the new two. But the article have to be seen as in case of Private Limited companies, no shares can be issued/ transferred to the outsiders except directors and their relatives or share holders. So before transferring the shares please go through the articles and act thoroughly.

Moreover, the company can take the loan after making them the shareholders otherwise it will be trated as Deposit and then the company could have to follow Section 58A