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Issue of shares by pvt. co.

Shridhi Jain (Company Secretary) (1678 Points)

11 June 2012

Dear members,

A pub. co. wants to invest in shares of private co.

Both the companies are not related in anyway. Can pub.co. invest in the issue of shares by pvt. co.?

Issue of shares are in premium.

Definition of pvt. co. says...

Sec3 (iii) : Prohibits public invitation to subscribe for shares/debentures. Probhibits invitation or acceptance of deposits from public.

As pvt. co. is not inviting the pub co to invest, can the pvt. co. issue shares to pub co. if pub. co so wants.

I think it cannot b taken as deposit too.

Pls ans.

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6 Replies

Madhusudan Kabra (knowledge seeker) (1779 Points)
Replied 11 June 2012

Yes ... a pvt company can do so....

The above defination of Pvt co. prohibites to make public offer..... i.e. to issue prospectus etc.

Regards

Madhusudan

ROSHAN BHARTIA (ACCOUNTANT AND CA ARTICLE) (2250 Points)
Replied 11 June 2012

NO PRIVATE COMPANY CANT DO SO BCOZ SHARE TRANSFER OR ACCEPTING DEPOSIT OR OFFER STRICLY PROHIBTED

Madhusudan Kabra (knowledge seeker) (1779 Points)
Replied 11 June 2012

company law prohibites only making public offer whether it is for share or for deposites ....it does not prohibites allotment ...

Madhusudan

Shridhi Jain (Company Secretary) (1678 Points)
Replied 11 June 2012

Thanks Madhusudan.

Can u pls give me some more clarification on this. Any case study ?

Pub co. is not related anyway to pvt. co. and a private co. is a closely held company which cannot accept any public money, no matter in which form it is doing so.

So if a pvt. co. can allot shares to outsiders then wat is the relevance of pub issue here? Only issuing or non issuing of prospectus ??? Wat purpose does it serve?

Madhusudan Kabra (knowledge seeker) (1779 Points)
Replied 11 June 2012

A Pvt. company can allote share to the anyone... it is not neccessary that the person should be director, relative friend etc. there is no bar.

It serves the purpose of legislature...... legislatures have made some special provision for the public companies for the transperancy and in the interest of its investors and it has made certain additional compliance requirement mandatory for the public companies in the interest of the investors. on the other part provision related to Pvt. co. are quite librel as compared to Public company thus Pvt. companies are less transperant as compared to public company as far as investors view point is concerned. this might be the reason Pvt. companaies are not allowed to issue prospectus and accept deposites.

Regards

Madhusudan

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