share alloted by a pvt co. in pursuance of a agreement

This query is : Resolved

CA YOGESH (Querist)
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25 October 2007 A pvt co. needs finance. Pvt. co. entered into a agreement with another company .

The financer will give finance to the company and he will subscribe company share capital up to amount which he has given finance.

Further, Promoter agrees to buy the shares for a specified period at a specified rate

The agreement provides that Financer will vote in AGM in favour of Promoter.

Whether this agreement is valid or not ?

Whether a pvt co. can allot his share as a security

R.V.RAO

R.V.RAO (Expert)
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26 October 2007 SHARES CAN BE ALLOTTED FOR CONSIDERATION OTHERTHAN CASH.BUT IN A PRIVATE COMPANY SHARES CANNOT BE ALLOTTED TO NON MEMBERS SINCE THE PRIVATE CHARACTER OF THE COMPANY GETS AFFECTED AND VOID.
SINCE ALLOTMENT TO NON MEMBERS IS PROHIBITED, OTHER ISSUES RAISED BY YOU CANNOT BE CONSIDERED.
INSTEAD THE PROMOTER BEING AN EXISTING SHAREHOLDER CAN GET ALLOTMENT(FINANCED BY financier) , AND THEN TRANSFER THE ALLOTTED SHARES TO FINANCIER AFTER GETTING THE OFFER(OF PURCHASE OF HIS SHARES) REFUSED BY EXISTING SHAREHOLDERS.
R.V.RAO

Srinath A. N.

Srinath A. N. (Expert)
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27 October 2007 In case you are allotting to shares to non member, then you shaould confirm the procedure for allotting shares to non-member stated in the Articles of the Company. Further, before allotting shares to non-members, first need to be offerred to existing shareholders and take letters from existing shareholders for refusal for further allotment.

Subsequently allot shares to the non-member.

In case promoter agrees to purchase the shares at a agreed rate, then it should be approved by the board for such transfer (only transfer will be approved by the Board not the consideration).

This agreement is valid (generally) however other clauses of the agreement shall be seen before concluding the validity.

yes, private company allot shares, not as a security, but as subscription to capital. However, plese ensure that for such agreement Company, existing shareholders and subscriber shall be parties.

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