What are the implications of various percentage of shareholding under the Companies Act?

§ Under the Companies Act 1956, the various percentages of shareholdings have different connotations because different rights accompany them. The common percentages, which are magical, are 10%, 26%, 51% and 76%.

Implication of 10%

1. With 10% shareholding, you are recognized as a sufficient holder of shares to attract remedies against oppression and mismanagement of the Company. You can apply to the Company Law Board for the mismanagement of the Company by the existing management if you have qualifying 10% of the paid up share capital of the Company.

2. Secondly under Section 235 of the Companies Act, 10% holder can apply to the Central Government for investigation into the affairs of the Company.

Implication of 26%

Any shareholder having 26% of the paid up equity share capital of the Company, can block alteration of Articles as well as Memorandum of Association because such alteration requires passing of Special Resolution which requires at least 3/4th majority. Therefore, the Company can not start a new business, can not change the Registered Office of the Company, can not change the Articles i.e. rules for the governance of internal management of the Company, can not issue shares to other than the existing shareholders, etc., because all such decisions require the Special Resolutions, which can be prevented by a 26% shareholder.

Implication of 51%The Companies Act, 1956, generally follows the principle of majority. Therefore, if you have 51% of the share capital (to be precise 1 share more than 50% and not necessarily 51%) then the day-to-day business of the Company can be carried on very easily. Barring special resolutions that are required for extraordinary items, the day-to-day functioning can be carried on without any hindrance. Under section 284 also, you can remove any director by simple majority.

Implication of 76%A shareholder having 76% shareholding absolutely has no restriction whatsoever not only to carry out day to day business but even items of extraordinary importance like amendment of Memorandum and Articles of Association etc. It means that from the Company Law point of view whether you hold 26% or you hold 49%, it has the same value. Similarly whether you hold 51% or 74%, it has the same value.