A public company listed on stock exchange can issue equity shares or preference shares by making a general offer through an Initial Public Offering (IPO) or FPO, but let’s find out how one obtains equity in private limited companies in India.
Shares in Private Limited Company
A company raises funds by issuing equity, which represents its stock. To bring in new investors, shares of the private limited company need to be issued. This article explores the process of issuing shares in a private limited (pvt ltd) company.
Issue of Private Limited Company Shares via Private Placement
Under Section 42 of the Companies Act, 2013, a company has the option to engage in a private placement to a limited group of individuals. A private placement offer letter is a communication wherein a company extends an offer of its shares. It invites a specific group of individuals to subscribe to its securities, as an alternative to a public offering.
In a financial year, the firm should not make a private placement to a number of persons exceeding fifty or such a greater number as required by the Rules. The fifty-person limit does not include qualified institutional buyers and employees of the company who are offered securities under a scheme of employees’ stock options under Section 62 of the Act.
Issue of Private Limited Company Shares via Rights Issue
In accordance with Section 62 of the Act, when a company with a share capital intends to increase its subscribed capital by issuing additional shares, these shares must be offered—
- to its existing investors’
- employees under an Employees stock option scheme (ESOP), subject to a special resolution passed by the company
- if the price of such shares is determined by the valuation report of a registered valuer, to any persons, whether or not those persons include the persons referred to in clauses (a) or (b), for cash or for a consideration other than cash, if it is authorised by a special resolution.
How to Transfer Shares of a Private Limited Company’s
The following steps must be followed in order to complete a share transfer of private limited company:
Step 1: Prepared a share transfer deed.
Step 2: Then finalize the share transfer deed by having both the transferor and the transferee sign it.
Step 3: Then stamp the share transfer document in accordance with the Indian Stamp Act or the respective State’s Stamp Duty Notification.
Step 4: Then have a witness sign the share transfer deed with his or her name, address, and signature.
Step 5: Then deliver the transfer deed to the Company together with the share certificate or allocation letter.
Step 6: Once the paperwork is approved, facilitate the issue of a new share certificate in the transferee’s name.
For expert advice on issuing or transferring private limited company shares, reach out to corporate law experts at Complianto at the earliest and propel your business aspirations to the moon.
