Family owned (non public) Private Limited company owns a property this is also being decided by all members to be sold to the key director and majority shareholder.
What are the formalities to be completed before registration of property transfer in the next board meeting?
Also, what needs to be done for any disclosures if this is considered a related party transaction?
Regards
Hey Kings22! Selling company property to a director (especially a majority shareholder) involves some important formalities and disclosures due to related party nature. Here’s what you need to do before registration and in your board meeting:
Approve the Sale:
The Board of Directors should pass a resolution approving the sale of the property to the director/shareholder specifying:
Details of property
Sale consideration
Terms and conditions of sale
Mode of payment
Valuation:
It is advisable to obtain a fair market valuation (e.g., by a registered valuer) to avoid disputes or allegations of undervaluation or preferential treatment.
Related Party Transaction Approval:
Since the buyer is a related party (director and majority shareholder), the transaction is a Related Party Transaction (RPT) under the Companies Act, 2013.
If the transaction crosses materiality thresholds (e.g., exceeds 10% of the turnover or net worth), the approval of shareholders by special resolution may be required under Section 188 of the Companies Act, 2013.
In a closely-held company (family owned), usually all shareholders may agree, but a formal resolution is important.
Board Report Disclosure:
The transaction must be disclosed in the Board’s report under Related Party Transactions.
Form MBP-1:
If the company is a listed entity (or certain prescribed companies), the RPT needs to be disclosed in MBP-1 to the Registrar of Companies (RoC).
Financial Statements:
Disclose the RPT in the notes to accounts in the Annual Financial Statements.
Ensure no restriction in the Articles of Association regarding sale of company property.
Obtain No Objection Certificate (NOC) from other shareholders if required.
Ensure payment terms are clear and transaction is at arm’s length.
Consider capital gains tax on sale of property.
Stamp duty and registration charges will apply based on state laws.
“Resolved that pursuant to the provisions of Section 188 and other applicable provisions of the Companies Act, 2013, and subject to approval of members if required, approval of the Board be and is hereby accorded for sale of company-owned property situated at [address] to Mr. XYZ (Director and majority shareholder) at a consideration of Rs. [amount] as per valuation report dated [date]. The Director is interested in the transaction and abstained from voting.”
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