Hemang (Director) 08 April 2010

Pvt. Ltd. shareholder rights

In a Pvt. Ltd. company having 4 shareholders, 2 with 40% shares and other 2 with 60% shares, what is the power with 60% holders in case of dispute. I have some questions:

1) Can the 60% holders remove the other 2 persons as directors (all the shareholders are directors) and appoint new directors and decide on their salaries?

2) Can the 60% holders repay their own loans given to the company and decide their own remuneration (as directors)?

3) Can the 60% holders issues fresh shares and increase their shareholding ratio?

4) Can the 60% holders get bank loans and invest in machinery?

5) Would the 40% holders be liable for the losses in the company even if they were not directors?

Thanks

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4 Replies

Adv. Gulammayudin A. Gagdani (LEGAL ADVISOR) 09 April 2010

it would be better if you can take any company secretary's assistance on the topic

CS Pooja (Company Secretary) 09 April 2010

1)...

(A) Removal of Directors is provided under Sections 283, 284 of the Companies Act, 1956.

(B) A private company can also provide for other disqualifications of a Director in its Articles

(C) Instead of removing the Director, you can ask him to resign and file form 32 with the Registrar. A private company can be run with 2 Directors.

2) ...

(A) There is no provision that stops you to repay your loans. But, there has to be a valid justification for all the financial decisions.

3) ....

Fresh shares can be issued, provided, the same is approved by the Board in its meeting. Plus, allotment of shares in another meeting.

4) ....

Shareholders and the Company are two different entities. Hence, in case the Company needs loans, it has nothing to do with who the shareholders are. The loan will be in the name of the Company.

5) ...

40% holders, who are also Directors, if are no more on Board, are not liable after they have resigned. Hence their liability is restricted to the period in which they held the directorship.

1 Like

CA Adarsh Agrawal (CMD of SHAYVIDZ Group) 16 April 2010

Originally posted by :Hemang
"	In a Pvt. Ltd. company having 4 shareholders, 2 with 40% shares and other 2 with 60% shares, what is the power with 60% holders in case of dispute. I have some questions: 1) Can the 60% holders remove the other 2 persons as directors (all the shareholders are directors) and appoint new directors and decide on their salaries? 2) Can the 60% holders repay their own loans given to the company and decide their own remuneration (as directors)? 3) Can the 60% holders issues fresh shares and increase their shareholding ratio? 4) Can the 60% holders get bank loans and invest in machinery? 5) Would the 40% holders be liable for the losses in the company even if they were not directors? Thanks	"

1. Yes, 60% holder can remove the directors & can appoint new directors by following the procedure of Sec 284.

2. Company has to repay the loans according to the terms & conditions approved by the board or in General Meeting as the case may be. So the repayment should be in the manner as per terms & conditions of the loan and it should not b prejudicial to the interest of the company.

Yes,Director's remuneration can be fixed according to the provision in AOA or in General Meeting.

3. Yes, practically the board can issue further fresh shares to any person in closed group or to existing shareholders. (Board can increase ur holding).

4. Yes, the loan can be taken from the bank by BOARD & investment can be made subject to the provisions of Sec 292 & Sec 293.

5. No, ! as Pooja says in above post, the past directors who were not in the post during the defaulting period will not be liable for any act of this period.