Tuesday, March 8, 2011

Pledge of Shares of a Private Limited Company: Procedure Under the Companies Act 1956

How to Handle Pledge of Shares of a Private Limited Company
 Procedure Under Companies Act 1956
Pledge of shares is a common practice adopted in the securities market by investors and intermediaries to raise finance.

The Directors or Promoters used to pledge their shares of their own requirement or for the benefit of the company.

In this regard the First step is to Enter into a Share Pledge Agreement into with the lending institution. Thereafter information and reporting requirement is to be complied with which is described below.
Under the provisions of Indian companies act, 1956 the person who ceases to hold the beneficial interest in a shares is required to make a declaration in Form – I of Companies (Declaration of Beneficial Interest in Shares) Rules, 1975 in duplicate with the company specifying the name of and other particulars of the person who holds the beneficial interest in such shares, within 30 days of ceasing to hold beneficial interest in share.

Similarly, a person becoming to hold any beneficial interest in a share has to make a declaration in Form II of Companies (Declaration of Beneficial Interest in Shares) Rules, 1975 in duplicate with the company within 30 days of becoming such beneficial owner in share, specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and other prescribed particulars in the form.

On receiving such declarations, Indian company has to make a note of such declaration in its register of members relating to such change and is also required to file a return in prescribed form 22B with the Registrar of the companies within 30 days of receiving such declarations. This form 22B shall be accompanied by a copy of declarations received by the company in Form I and II respectively.

1.     1.  Declaration in Form-I
2.     2.  Declaration in Form-II
3.     3.   Form 22B
4.   4.  Board Resolution passed by circulation or otherwise for taking note of declarations made and authorizing the director(s) to make entry in the register of members and filing of form 22B with the ROC

Note: If the Company is a foreign company then all documents are required to be consularized/ apostle in the home country by Indian Embassy or a certified Notary.   

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