How to Change Shareholding Pattern in Private Limited Company?

  • Setindiabiz Team
  • April 2, 2024
Shareholding Change

Embracing and handling changes in shareholding pattern of a private limited company can help keep pace with the latest industry norms and ensure growth by attracting more capital for the business expansion or entering new verticals or markets. Taking deeper insights into the responsible factors and procedures for shareholding pattern change can ensure seamless execution of shareholding change thus may result in better business growth.

In the realm of business, change is an indispensable part that helps in keeping pace with the dynamic business environment. Whether it’s due to the implementation of new strategies, introduction of new investments, or succession planning, change in shareholding patterns in a private limited company is so common these days. However, navigating the process of change of shareholding pattern requires careful consideration of legal, regulatory, and procedural aspects. The blog will help you dig deeper into the intricacies of changing the shareholding pattern in a private limited company and provide a brief guide for the stakeholders involved.

Shareholding Pattern: An Introduction

Before moving ahead to the process of changing the shareholding pattern, it’s essential to grasp what ‘Shareholding Pattern’ means! The shareholding pattern refers to the distribution of shares among shareholders with certain details such as the number of shares different shareholders own and their corresponding percentage of ownership. It is pivotal information for investors, regulators, and stakeholders to comprehend the ownership structure and its implications on decision-making as well as control within the company.

Reasons for Change in Shareholding Pattern of Private Limited Company

Several factors may be responsible for considering a change of shareholding in a private limited company. It may include;

Raising of Authorised Capital

Authorised Capital of a company is the limit till which capital can be raised in a company. In case fresh shares are being issued and the authorised capital is already consumed, then first of all, the company has to increase its authorised capital to accommodate fresh allotment / Issue of shares. There is some nominal fee which has to be paid to the central government and stamp duty needs to be paid on the increased share capital of the company.

Allotment of Fresh Shares

In a private limited company shares can be allotted up to 200 persons without seeking any kind of approval from the government. However, the existing shareholders have the first right to such fresh allotment/issue of shares. The shares can be allotted by the board of directors meeting. The return of allotment needs to be filed with the government of India within 15 days of such allotment. After the allotment of shares, the share certificate must be issued within 60 days.

Transfer of Shares

Shares can be transferred between two consenting persons. There is a prescribed share transfer form which needs to be filled, and signed by the transferor and transferee in the presence of a witness. The share transfer form along with the original share certificate must be sent to the registered address of the company for necessary alteration in the register of members and share transfer register. The company shall be issuing fresh share certificates to new shareholder/shareholders.

Transmission of Shares

Upon the death of a shareholder of the company, the legal heirs are entitled for the transfer of shares in their name. However, in case the shareholder had nominated some other person then that other person is entitled for the shares. The transmission request must be presented to the company along with the court order or will which has been probated in the court.

Buy-Back of Shares

The company can buy back its own shares from the shareholders against a consideration which should not be less than the valuation of shares. The consideration for such buyback must be paid from free general reserves. Thus, only a profit-making company can buy back its own shares. The consideration amount which has to be paid to the shareholders in a scheme of Buy-Back must be deposited in a separate bank account opened for this purpose only.

Key Steps Involved in Shareholding Pattern Change

Certain steps need to be followed for the alteration of shareholding pattern. Those include;
  • Board Approval: Any proposed change to the shareholding pattern requires approvals from the company’s board of directors. A board meeting should be held to discuss and authorize the changes to comply with the company’s strategic objectives and legal obligations. 
  • Share Transfer Agreement: Once the board approves the change in shareholding pattern, a Share Transfer Agreement is executed between the transferring and acquiring shareholders. This agreement outlines the terms and conditions of the share transfer, also including the number of shares to be transferred, consideration, and warranties & representations.
  • Shareholders’ Approval: Depending on legal obligations and provisions outlined in the company’s Articles of Association (AOA), shareholders’ approval may be required in case of certain types of share transfers or changes in shareholding patterns. Shareholders are notified of such proposed changes and are given the opportunity to vote on the resolution at a general meeting. 
  • Regulatory Compliance: Regulatory compliances are required to be fulfilled to smoothly change the shareholding pattern. According to the jurisdiction and nature of the changes, filings may be required with regulatory authorities including the Registrar of Companies or Securities and Exchange Commission. 
  • Company’s Records Updation: Post completion of the change in shareholding pattern, corporate records including the Register of Members and share certificates, need updation to reflect the revised shareholding pattern accurately. It helps ensure transparency and compliance with legal and regulatory obligations.

Change in shareholding pattern in a private limited company is a structured process that requires careful planning, diligent execution, and adherence to several legal and regulatory requirements. By following the aforementioned steps under legal guidance can ensure a seamless change of shareholding in a private limited company while protecting the interests of all stakeholders involved. Embracing changes and efficiently managing the shareholding pattern change can pave a path for sustainable growth in today’s cut-throat competitive business environment. Seek professional assistance from Setindiabiz’s expert team and change the shareholding pattern in your private limited company smoothly.



Q1: What is a shareholding pattern alteration, and why does it occur?

A shareholding pattern change involves changes in the distribution of shares among shareholders in a private limited company. It can occur due to various reasons such as the raising of authorized capital, transmission of shares, allotment of fresh shares, strategic expansion, succession planning, mergers, acquisitions, or regulatory compliance.

Q2: What steps are involved in changing the shareholding pattern of a private limited company?

The key steps for changing the shareholding pattern typically involve obtaining board approval, executing a share transfer agreement, obtaining shareholders’ approval, ensuring regulatory compliance, and updating corporate records to reflect the revised shareholding pattern accurately.

Q3:Do shareholders need to approve changes in the shareholding pattern?

Depending on legal requirements and the company’s Articles of Association, shareholders’ approval may be necessary for certain types of share transfers or alterations in the shareholding pattern. Shareholders are usually provided with an opportunity to vote on the resolution at a general meeting.

Q4: What are the compliances associated with change in the shareholding pattern?

Compliance with regulatory requirements is crucial when changing the shareholding pattern in private limited companies. This may involve filings with regulatory authorities such as the Registrar of Companies or Securities and Exchange Commission, depending on the jurisdiction and nature of the changes.

Q5: How can shareholders ensure compliance during the shareholding pattern change?

Shareholders can ensure transparency and compliance by actively participating in board meetings, reviewing and approving relevant agreements and resolutions, and seeking legal or professional advice when necessary. Moreover, updating corporate records accurately and promptly is essential to reflect the revised shareholding pattern in compliance with legal and regulatory obligations.

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