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How Do I Bring in New Shareholders into My Private Limited Company?

Team YS
3rd May 2012
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When you start a company, it is usually with a lot of hope, expectations and aspirations for the future. However, it often happens that things don't work out exactly the way you want them to. If a person who started the company with you needs to leave, be it because you can't seem to agree on the terms of his engagement, or he wants a higher share on different terms, don’t fall into despair.One of the major advantages of having a Private Limited company is that the company is a distinct and separate entity from the shareholders who are part of the company. So if someone who was earlier a part of the company wants to leave, you need to take immediate steps to make their exit (and the entry of someone else smooth and painless for the company).

Here are a few steps which will help you do that:

  1. Make sure that the shares have been formally allotted; For the formal allotment, the subscriber should have paid the amount of the shares to the company, and the shares should have been formally transferred to the person. You need to show that the value of the shares has been received by the company, as opposed to you or any other member of the company.
  2. After the formal allotment is over, prepare share certificates for each member of the company. The share certificates need to be prepared carefully, and a unique number needs to be allotted to each of the shares, or each batch of shares.
  3. After the share certificates are prepared, you need to fill out the transfer forms to effect the transfer from the person in question to some other person - this can be any person chosen mutually or unilaterally, depending on the Articles of Association.
  4. Once the share transfer forms are prepared, you need to execute the forms and have them registered before the Registrar of Companies in the area in which your company is situated.

Remember that while this sounds long and complicated, this is not difficult and while it takes time, it can be done and in fact, most of the process is now possible online.

Or,

If there are very serious problems in removing the person, or the person does not agree to let you sell the stake to someone else, or similar roadblocks arise, you always have the option of starting another private limited company from scratch.

This seems contrary to logic and common sense, but it is sometimes easier to let go of something that is riddled with complexity and move to a new entity than to cling on.

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