Squeeze out of Minority Shareholders / Purchase of minority shareholding The Companies Act 2013 introduced the squeeze out provisions i.e. Squeeze out of Minority Shareholders.
Squeeze out of minority shareholders, in simple words, means the process which allows the majority shareholders of a company to compulsorily acquire the minority shareholders (including non-assenting ones).
Also it may be noted that the provisions also allows the minority shareholders to have the right to be bought out by the majority shareholders.
Lets go through the provisions in detail:
The provisions forPurchase ofminorityshareholding are prescribed under Section 236 of the companies act 2013.
In case the following persons become the holder of the 90% or more equity share capital of the company, then they shall notify the company of their intention to buy the remaining equity shares.
an acquirer; or
a person acting in concert with such acquirer; or
any persons or group of persons.
Situations when the above persons become registered holder of 90% or more equity share capital of the company:
by an amalgamation; or
by share exchange; or
by conversion of securities; or
for any other reason.
Pricing of the shares to be acquired:
The minority shareholders shall be made an offer for buying the equity shares
from them, at a price determined on the basis of valuation by a
registered valuer in accordance with such rules as may be prescribed.
Minority may offer to the majority shareholders:
Without prejudice to the above provisions,
the minority shareholders of the company may offer to the majority shareholders
to purchase the minority equity shareholding of the company at the price
determined in accordance with such rules as may be prescribed.
Deposit of value of shares in separate bank account:
The majority shareholders shall deposit an amount equal to the value of shares
to be acquired by them, in a separate bank account to be operated by the transferor
company for at least 1 year for payment to the minority shareholders and such
amount shall be disbursed to the entitled shareholders within 60 days:
that such disbursement shall continue to be made to the entitled shareholders
for a period of 1 year, who for any reason had not been made disbursement
within the said period of 60 days or if the disbursement have been made
within the aforesaid period of 60 days, fail to receive or claim payment
arising out of such disbursement.
Transferor company to act as a transfer agent:
In the event of a purchase under this section, the transferor company shall act
as a transfer agent for receiving and paying the price to the minority
shareholders and for taking delivery of the shares and delivering such shares
to the majority, as the case may be.
Cancellation of share certificate:
In the absence of a physical delivery of shares by the shareholders within the
time specified by the company, the share certificates shall be deemed to be
cancelled, and the transferor company shall be authorised to issue shares in
lieu of the cancelled shares and complete the transfer in accordance with law
and make payment of the price out of deposit made by the majority in advance to the minority by despatch of such payment.
In the event of a majority shareholder or shareholders requiring a full
purchase and making payment of price by deposit with the company for any shareholder
or shareholders who have died or ceased to exist, or whose heirs, successors,
administrators or assignees have not been brought on record by transmission,
the right of such shareholders to make an offer for sale of minority equity
shareholding shall continue and be available for a period of 3 years from
the date of majority acquisition or majority shareholding.
Where the shares of minority shareholders have been acquired in pursuance of
this section and as on or prior to the date of transfer following such
acquisition, the shareholders holding 75% or more minority
equity shareholding negotiate or reach an understanding on a higher price for
any transfer, proposed or agreed upon, of the shares held by them without
disclosing the fact or likelihood of transfer taking place on the basis of such
negotiation, understanding or agreement, the majority shareholders shall share
the additional compensation so received by them with such minority shareholders
on a pro rata basis.
Majority equity shareholder fails to acquire full purchase of the shares:
When a shareholder or the majority equity shareholder fails to acquire full
purchase of the shares of the minority equity shareholders, then, the
provisions of this section shall continue to apply to the residual minority
equity shareholders, even though,—
the shares of the company of the residual minority equity shareholder had been
the period of one year or the period specified in the regulations made by the
Securities and Exchange Board under the Securities and Exchange Board of India
Act, 1992, had elapsed.
Meaning acquirer” and “person acting in concert”
The expressions “acquirer” and “person acting in concert” shall have the meanings respectively assigned to them in clause (b) and clause (e) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Important Note: It may be noted that the above provisions do not provide a time limit within which the majority shareholders will have to offer to the minority shareholders for buying their shares.