Banner Image

How to Invest in Private Limited Company through Shareholding

Online Legal India LogoBy Online Legal India Published On 24 Jul 2021 Updated On 06 Jan 2023 Category Private Limited Company

Before glancing into a complex topic like how to make the investment in a private limited company through shareholding, we should be clear about what a private limited company is along with what are the features. 

As per the Companies Act 2013, incorporation of private company is created. The private limited company runs with a limited number of shareholders. 

There are a few features that have made a private limited company unique:

  1. The Companies Act 2013 depicts that at least two members are required for online private company registration
  2. The paid-up capital required for a private limited company is a minimum of 1 lakh.
  3. There is a ‘name mandatory factor’ that is associated with the Pvt ltd. company. The rule says, using the term ‘private limited’ is mandatory after the name you have chosen for the company.

These are the three core features of the private limited company.

Now, let’s come to the core point of the article. Here we are going to discuss what is the pattern of investment in a private limited company? How a third party can make an investment in a private limited company or Pvt ltd enterprise is the matter of discussion here.

The MCA or Ministry of Corporate Affairs has stipulated rules like who can invest in a private limited company. 

  1. An Individual Person
  2. HUF (Hindu Undivided Family) 
  3. LLP or Limited Liability Partnership Company 
  4. Corporate Body
  5. Even a minor can hold a share in a private limited company through the guardian.    

Overall, these are the persons, families, or firms who can invest in a private limited company through the shareholding process.
Before investing in a private limited company, the third-party investor should remain careful of a few factors.

Consider the Objectives Before Investing in Private Limited Company:

  • Whether or not the investment guarantees a high return after investment.
  • Check out whether the principal amount you have invested is safe or not.
  • Liquidity is also a prime factor for third-party investors. It is only beneficial for the investors when they can make an easy liquidity conversation.  
  • If an investor has purchased the shares of a private limited company, then the investor must have acquired the voting power and decision-making power of the private limited company.
  • The safety rules associated with private limited investment depict that though there is a chance of higher return after investing in the shares of a private limited company there is always danger associated with the move. 

These are the five points associated with the objectives of investing in a private limited company or joint-stock company.

The Process of Holding Shares in a Private Limited Company:

The Companies Act 2013 describes that a private limited company cannot make its shares public. The process of capital-raising in a private limited company is that you can only sell the shares among the directors, shareholders, members, and their relatives. 

How to Subscribe Shares in a Private Limited Company?

The private limited companies can subscribe to the MoA (Memorandum of Association) to form a private limited company. Individual persons who subscribe to the MoA (Memorandum of Association) are considered as the shareholders of a private limited company.

This is the way to subscribe to shares in a private limited company.

The Rule Related to Transfers of Shares in a Private Limited Company 

A ‘Share Transfer Deed’ is required to transfer shares from one partner to another partner. The Share Transfer Deed should keep all the details of the transferor and the transferee along with the share certificate numbers.

The Board of Directors should also acknowledge the process when shares are being transferred from the transferor to the transferee.

The Process to Incorporate a Private Limited Company

Incorporating or registering a private limited company has a few benefits. One of the benefits as you have understood is that you can raise capital by privately arranging the share-selling system.

First of all, you have to register your company as a private limited company. You can register Pvt ltd company India by obtaining support from Online Legal India™ experts. 

You only need to pay the Pvt ltd company registration fees, submit the official documents and register your company as a private limited company.  

Conclusion:

Indeed, the Pvt ltd enterprise has entered a new phase of investing through shareholding. Though the shares are not available for the public as you have read special arrangements can be made for share buying or share transformation.


Share With :