Dear Members,
Please help and advise on the following scenario:
We are a private limited Company with five shareholders (Resident Indians) and all five of us are also the directors of the company. We set up the company in the year 2007. The shareholding of the five individuals as of now is as per the contribution made to initial paid up capital:
- 1 shareholder has 40%
- 1 shareholder has 30%
- 3 shareholders have 10 % each
In the last eleven years since the commencement of the business, we have grown substantially and we are a profit making company with healthy cash reserves. All five of us agree that the current shareholding pattern should change to equate the shareholding between the five of us, that is, the shareholding should be 20% each for the five of us.
Here is the problem:
- Face value of each share : 10 Rs
- Book value per share has grown to 2500 Rs
- Fair Market Value would definitely be higher than 5000 (Although we have not yet finalized the logic / formula to arrive at it)
We do not wish to put ourselves into financial constraints by transfering shares within the group at the Book Value as that would mean a lot of stress for the 3 shareholders at 10%. We have been advised to go for rights issue at face value (10 Rs) wherein the 2 share holders will renounce their rights and the others can pick up the fresh shares so that we get to the situation where all of us are at 20%.
We have been wondering if that is even possible and will ROC or the taxman have any issues with the said mechanism. We do not wish to embroil ourselves in technical or legal hurdles and do not wish to adopt any possibly illegal / technically incorrect measures.
Questions therefore:
- Can we go for fresh rights issue at Face value? Will the taxman or the ROC have any problems with it?
- Is there another clean way to do this without having to pay huge amounts for share transfer or pay hugely on taxes?
Please advise. Thanks a ton in anticipation.
regards
Champak
CAclubindia
