Takeover of a Pvt. Ltd. Co. by another Pvt. Ltd. Co.

Pvt ltd 3655 views 4 replies

A Private limited company (say ABC) incorporated 6 months ago and having authorized and paid up share capital of Rs.1.00 lac is planning to acquire another 5 years old Private limited company (say XYZ) having paid up share capital of Rs.5.00 lacs at agreed consideration of say Rs.20.00 lacs at fair market value. This investment of Rs.20.00 lacs will be made by ABC from unsecured loans from directors, shareholders and their relatives etc. and will be paid to shareholders of XYZ. With this transfer of shares to ABC (including nominees), XYZ will become wholly owned subsidiary of ABC. The directors of both the companies will be common after transfer.

My queries are as under: -

1)      Is it permissible for ABC, a private limited company to make investment of 20 times of it’s paid up capital in the share capital of XYZ, another private limited company. If yes, what procedure is to be followed?

2)      Is it permissible for ABC, a private limited company to borrow 20 times of it’s paid up capital. If yes, what procedure is to be followed?

3)      If company ABC increases its authorized share capital to meet its funds requirement, can its shares be issued at a premium to the existing as well as new shareholders / investors?  If yes, what procedure is to be followed?

4)      On becoming XYZ as a wholly owned subsidiary, what additional compliances are to be done by company ABC under Companies Act, 1956?

Please guide me on the above, so that there is no violation of any provision of the Companies Act.

Thanks in advance.

Replies (4)
Dear CA. Satendar Kumar Sections 372 and 372A of the Companies Act, 1956 does not applicable to independent private companies. Your company may take over another private company.

Dear Satendar,

 

I agree with Mr. Mani, however u should confirm that your pvt. co should not be a subsidiary of a public ltd. Co., else section 372A will apply to your pvt. co.

Regards,

I will reply point wise:

 

1) ABC can invest any amount in the other company. Board Resolution will suffice.

2) The company can borrow any amount. Again Board Resolution will suffice.

3) The company being a Pvt. Ltd. can issue shares to any body. Sec 81(1A) is not applicable. Shares can be issued at a Premium, provided the valuations of the Company justify the premium. Board Resolution will suffice.

4) Additional compliance for ABC: Section 212 would become applicable.

Thanks all for their expert opinion.


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