Shareholding Change

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Reading Time: 3 minutes| (Last Updated On: September 4, 2019)

Shareholding Change

Shareholding Change

The person who subscribes to Memorandum and Articles of association of a company is known as promoter shareholder. However with the increase in operations fresh funds are needed which can be arranged through various methods of fundraising initiatives. In case the fund is being raised to bring capital to the company then change in shareholding pattern takes place. Other reasons could be transfer of shares, transmission of shares, buy back of shares. etc.

Shareholding Change

Conditions under which Transfer of Shares is Void

  1. When the transfer is to a minor
  2. When consent of all existing shareholders is not obtained
  3. If the transfer is in violation of Articles of Association
  4. Any transfer without consideration
  5. when it is done without free will of parties

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 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 need to be paid on the increased share capital of the company.

Allotment of Fresh Shares

In a private limited company shares can be allotted upto 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 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 presence of a witness. The share transfer form along with 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. Company shall be issuing fresh share certificate to new shareholder.

Transmission of Shares

Upon death of a shareholder of the company the legal heirs are entitled for 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

Shareholding Change

Company can buy back its own shares from the shareholders against a consideration which should not be less that the valuation of shares. The consideration for such buy back 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.

Payment of Stamp Duty

Each state government have promulgated a separate law on stamp duty, The rates of stamp duty differs from state to state. The stamp duty is payable at the time of increase in share capital which inter alia amounts to alteration of articles of association. Stamp duty @ .25% of the nominal value of shares need to be paid on the issuance of share certificate. The share transfer form also needs to be stamped @ .25% of the consideration amount of the shares so transferred.

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