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Basics on private company shares...

Life2014 (Professional) (100 Points)

05 December 2012

Dear All,

I am a new member in this forum. So please bear with me if my questions seems very silly.

1) In a new private ltd. company having total share capital of 5 Lacs with 1 share value Rs. 10. Do they need to print 50,000 share certificates for their share holders ?

2) At the end of first year company makes a profit of 2 Lacs. Will this amount be added to total share capital makig it 5 + 2 = 7 Lacs ??

3) If one shareholder wants to sell (1000 shares bought at Rs. 10). Then at what price he will sell them & how he will calculate the current price of share ???

I will be glad if anyone answers the above queries. Thanks in advance.

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7 Replies

Sneha (Company Secretary) (1594 Points)
Replied 05 December 2012

1. No. the number of share certificates to be printed depends on the number of shareholders of the Company. If there are 10 shareholders in the company holding 5000 shares each, you need to print minimum 10 share certificates and maximum as per the request of the respective shareholders.

2. The capital of the Company will be Rs. 500,000 in the next year irrespective of the amount of profit. Share Capital only depends upon the shares alloted to the share holders by the Company.

3. As it is a private Company, first you need to offer these 1000 shares to the existing shareholders. If they dont want to take these shares, it can be transfered to others.

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Life2014 (Professional) (100 Points)
Replied 05 December 2012

Let's say we issue 10 share certificates to 10 people with 1 certificate = 5000 shares. And later one shareholder wants to sell only 300 shares. In that case how he will sell them? Can a pvt. company adopt any measure to buy/sell shares in electronic form ??

2. As it is a private Company, first you need to offer these 1000 shares to the existing shareholders. If they dont want to take these shares, it can be transfered to others.

And while selling 1000 shares at what price it can be sold ? Can the share price of a pvt. company increase or decrease like listed compnaies??

- We want allocate some shares with no voting rights attached. Please explain how it can be done?

Sneha (Company Secretary) (1594 Points)
Replied 05 December 2012

When shareholder wants to sell 3000 shares, first a request will be sent to company to split the share certificate in two, for 3000 shares and 2000 shares respectively. And then those 3000 shares can be transfered.

For your second query, the transfer procedure and price is generally provided for in the Company"s Articles. It is generally transfered at fair price as determined by Directors or Auditors of the Company.

Life2014 (Professional) (100 Points)
Replied 05 December 2012

Many thanks Sneha for your quick reply. But still some issues remain unclear to me such as:

1) If the shareholder sells at fair price then what benefit he will get? (except annual dividend)

2) What is the method by which share price of pvt. company can be calculated at any moment?

3) Is there any provision to buy/sell shares of pvt. company in electronic form? (like demat)

4) How shares can be allocated without any voting rights?

Looking forward your reply. Thank you.

Riddhi Thakkar (Manager - Legal and Secretarial) (121 Points)
Replied 05 December 2012

1) Usually the shares of private limited Companies are transferred at face value. That is, Rs. 10/- in your case. However, you may sell shares at a higher rate than face value, that is, at a premium.

2) You calculate the value of Shares as per various methods prescribed under the IT Act., like the Net Asset Method, Discounted Cash Flow Method etc.

3) Yes. A Company may hold shares in DEMAT form, even if its a private limited Company.

4) Ideally shares carry voting rights, that is, one share one vote. However, different classes of equity shares exist.

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Life2014 (Professional) (100 Points)
Replied 05 December 2012

Thanks Riddhi for answering.

1) Could you please explain how shares can be allocated with following voting rights: Founder director (1 share = 2 votes), Other directors or shareholders (1 share = 1 vote) and Employees (1 share = No vote). And what provision needs to be made to implement it ?

2) Can shares be allocated in following manner among 2 directors: Director1 (80% share) and Director2 (5% share) and rest 15% shares for employees & other directors in future ??

Thank you..

Riddhi Thakkar (Manager - Legal and Secretarial) (121 Points)
Replied 06 December 2012

Every equity shareholder has a right to vote at a general meeting. No company can prohibit any member from exercising his voting right any ground including the ground that he has not held his shares for a minimum period before he becomes eligible to vote. However, a member’s voting rights can be revoked if that member does not make payment of calls or other sums due against him or where the company has exercised the right of lien on his shares