Pledge of Shares by a shareholder of Unlisted Company

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karthika (Querist)
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14 March 2023 A shareholder, Mr.A holding 99.8% of shares in an Unlisted Public Company (Say, M/s.ABC Ltd) wishes to Pledge his shares. Whereas the Unlisted Public Company is a member holding 9.03% in a Listed Company (Say, M/s.XYZ Ltd). Mr.A is a promoter of both the said Unlisted M/s.ABC Ltd and M/s.XYZ Ltd. Is there any compliances needs to be carried out in the said companies for pledging of Mr.A's shares in Unlisted Company. Kindly share your views.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 For Mr. A to pledge his shares in the unlisted public company (ABC Ltd), certain compliance requirements and considerations should be kept in mind, especially since he holds a significant percentage of shares and is a promoter of both the unlisted and listed companies.

Here are the key compliance aspects to consider:

1. **Board Approval:**
- The board of directors of ABC Ltd (the unlisted public company) will need to approve the pledge of shares by Mr. A. This approval should be obtained in a board meeting where the details of the pledge (such as the number of shares, purpose, terms, etc.) are discussed and recorded.

2. **Shareholder Approval:**
- Depending on the Articles of Association of ABC Ltd, shareholder approval may also be required for the pledge of shares by a promoter holding such a high percentage of shares. Even if not explicitly required, it may be advisable to inform other shareholders about this transaction, especially if it affects the control or management of the company.

3. **Disclosure Requirements:**
- As Mr. A is a promoter of both ABC Ltd and XYZ Ltd (the listed company where ABC Ltd holds 9.03% shares), any material transaction involving Mr. A's shares in ABC Ltd may need to be disclosed as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, if XYZ Ltd is listed on a stock exchange.

4. **Regulatory Filings (if applicable):**
- Check if there are any specific regulatory filings required with the Registrar of Companies (RoC) or other regulatory authorities where ABC Ltd is registered. This may include updating the shareholding pattern or filing disclosures related to the pledge of shares.

**Loan Agreement and Terms:**
- The terms of the loan agreement under which Mr. A pledges his shares should be reviewed to ensure they comply with the company's Articles of Association and any regulatory requirements. This includes understanding any restrictions on pledging shares as per the Articles.

**Impact on Control and Management:**
- Assess the impact of the pledge on the control and management of ABC Ltd, especially considering Mr. A's significant shareholding. Ensure that the pledge does not violate any provisions related to control or management rights in the company's governance documents.

**Stamp Duty (if applicable):**
- Verify if there are any stamp duty implications on the pledge agreement under applicable state laws. Stamp duty may vary depending on the state where the agreement is executed.

It is advisable for ABC Ltd to consult with legal advisors and company secretaries to ensure all necessary compliances are met smoothly. This approach helps in safeguarding the interests of all stakeholders and ensures adherence to legal and regulatory requirements.