Share Allotment in Private Ltd Company

There are 2 processes by which a company can raise its fund under the company act 2013. This can be done by private placement of the shares and the Rights Issue of Share. A private company can issue its share to the current shareholders through the means of rights issues or bonus shares.

The first method for share allotment is the private placement where the sale of the securities to a small group of particular investors for increasing the capital. Basically, the mutual funds, pension funds, banks, and insurance companies make investments in the private placement of shares, the attention is to be given that through the private placement of shares for a fiscal year there should not be more than 200 people invited to subscribe securities.

The second one is the method rights issue of the shares which refers to the shares giving to the existing shareholders. It permits to buy more shares directly from the company proportionate to the present shareholdings within the allotted time. A company can issue shares on the basis of preferential shares along with the issue of sweat equity shares in the right issue act. Ona discount other unlike cash the Sweat Equity Shares belong to the equity shares, distributed by a company to its employees and directors.

Funds are attracted by the directors of the company. They opt for the loan or short term credit facilities for the short duration requirement. For the long term use the issuing of the equity shares is an effective option. At the premium or market value, new equity shares can be distributed. The issue of shares at a discount is halted by the companies act, 2013.

Stepwise method for distribution of equity shares of a private limited company

Valuation of Shares:- To conclude on the new limit of the authorized capital, or the amendment of the capital clause of the MOA directors has to engage in a legislatively assembled board meeting. The application sent to the directors should have the meeting schedule and the directors must have to be prepared for the resolution for the future. ICSI in the SS-1 standard is to be maintained for the board meetings.

Give shares to the existing shareholders:- the traditional shareholder of the company has the authority to issue a share. The case if the issued shares were not fully subscribed by the current shareholders then directors might approach other investors. As a private ltd company shares cannot be given to the public.

For issuing of fresh shares take permission from the board of directors:- director meeting is to be called for approving the allotment of new shares in the company. Notice to the directors must have the schedule for the meeting.

Filing of Return of Allotment in Form No PAS-3:- A return of distribution of equity shares is filed with the ROC in form No Pas-3 post-approval by the board of directors in the company. The paid-up capital of the company increases with the approval of similar roc.