Retirement of a director from a pvt ltd co.

Pvt ltd 894 views 2 replies

Mukul

Director

30 Points Joined October 2012

I am a promoter director in a Pvt. Ltd. Co. along with 4 other promoters. Two of us promoter directors wish to move on as the current activities do not interest us / keep us motivated. The other 3 directors have accepted our decision, wish to continue with the business activtiies, but in their individual capacity do not have the financial wherewithal to buy our share out. Since it is an amicable settlement we do not wish to spend more money in valuing the company through a merchant banker, we on our part are happy to receive compensation from the reserves available in the company.

Is this legally acceptable? What is the mechanism for doing so? What forms or declarations we need to make ? What will be our tax liability when we withdraw this reserves which are post tax paid. As professional directors we earn salaries and pay taxes.

Replies (2)

Smriti Dhawan

Company Secretary

347 Points Joined June 2009

Company can make payment from free reserve for purchase of shares only by way of Buy Back. Buy back of securities simply implies purchase of its own shares by the Company. But it is made from all the shareholders of the Company on proportionate basis there is no option that Company only buyback shares of some specific person in my opinion.

It will be better that you resign as Director of the Company and continue as Shareholder and transfer shares of the Company in near future to other directors and promoters when they have funds.

Mukul

Director

30 Points Joined October 2012

Ms. Smriti, Thanks for your quick response and sharing with us an option.

The financial condition of the other promoters does not permit them from buying our shares in the short term and we need these funds to kick-start our venture, now. Hence waiitng it out is not an option.

Extrapolating your response. As equal partners we hold 20% shares each. Is it be legally correct for the company to buy back 19% shares from from each the shareholders using its free reserves. Me and my other colleague who wish to exit leave 1% share in the company and - either forget it, or ask them to buy us out (now or later) since the value involved is considerably less.

Technically, Is there a limit to the number of shares that can be bought back in one go? Once we resort to the above mechanism, the other 3 directors who wish to continue to run the show, can they subsequently increase their share holding from the reduced 1% after the buy back to 32.66% each for the 3 of them and leave 1% each for me and my colleague who are quitting.

I am assuming that the money will be treated as long term capital gains in the hands of the promoters? Please correct me.