CCPS issue in Private Limited Company

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Aksha (Querist)
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09 January 2023 In what proportion CCPS should be allotted to existing shareholder? Is there any special restriction in such proportionate allotment? Can I Issue to few share holders alone? Kindly clarify.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Convertible Cumulative Preference Shares (CCPS) can be allotted to existing shareholders in proportion to their existing shareholding, subject to the provisions of the Companies Act, 2013 and the Articles of Association of the company. Here are the key points to consider:

1. **Proportionate Allotment**: Generally, when issuing CCPS to existing shareholders, companies often offer them in proportion to their current shareholding. For example, if a shareholder holds 10% of the equity shares of the company, they might be offered CCPS in a similar proportion.

2. **Restrictions and Requirements**:
- **Articles of Association**: The company's Articles of Association may specify any specific provisions regarding the allotment of CCPS to existing shareholders. It's essential to review these articles to ensure compliance.
- **Shareholder Approval**: If the issuance of CCPS affects the rights or privileges of existing shareholders, it may require approval through a special resolution passed by the shareholders.

3. **Issuance to Few Shareholders**:
- While it's common to offer CCPS to existing shareholders in proportion to their current holdings, there may be situations where the company decides to offer CCPS to only a select group of shareholders or even to a single shareholder. This decision must comply with legal requirements and should not unfairly prejudice other shareholders.

4. **Compliance and Fairness**:
- When issuing CCPS or any securities, it's crucial to ensure compliance with all regulatory requirements, including those set forth by the Securities and Exchange Board of India (SEBI) and the Companies Act, 2013.
- Fairness to shareholders is also paramount. The allotment should not unfairly benefit one shareholder over another without valid reasons that can be justified and documented.

5. **Legal Advice**: It's advisable to seek legal advice or consult with a company secretary regarding the specific allotment of CCPS. They can provide guidance tailored to your company's situation and ensure compliance with all applicable laws and regulations.

In summary, while there is flexibility in how CCPS can be allotted to existing shareholders, companies must adhere to legal and regulatory requirements, ensure fairness among shareholders, and comply with the provisions outlined in their Articles of Association.