The Securities and Exchange Board of India (SEBI) has asked the Ministry of Corporate Affairs (MCA) to consider allowing the issuance and holding of fractional shares under the proposed Companies Amendment Bill, according to a report by Business Standard.
Fractional shares represent ownership of less than one complete share. Such holdings can emerge from corporate actions including mergers, bonus issues and rights offerings.
Recognising them could also make it easier for retail investors to participate in companies whose individual shares have high market prices.
SEBI Pushes for Fractional Share Recognition
The proposal has been discussed previously. The Company Law Committee, in its 2022 report, recommended allowing companies to issue, hold and transfer fractional shares for certain classes of companies. For listed entities, it suggested that the framework could be prescribed in consultation with SEBI.
However, the Companies Amendment Bill introduced in Parliament on March 23 did not include provisions for fractional shares.
The legislation instead proposed recognising instruments such as Restricted Stock Units and Stock Appreciation Rights for executive compensation, alongside existing Employee Stock Option Plans.
A government source cited in the report said concerns over minority shareholder rights may have contributed to the omission. Since fractional holdings could potentially carry no voting rights, there are questions about whether their introduction could weaken shareholder protections.
Market experts believe allowing fractional ownership could improve liquidity and broaden investment opportunities for smaller investors. Investors with limited capital would be able to gain exposure to expensive stocks without purchasing an entire share.
Countries including the United States, Canada and Japan already permit fractional share ownership.
The Companies Amendment Bill was referred to a joint parliamentary committee, which submitted its report on August 3. The committee did not recommend adding provisions for fractional shares.
Experts, however, argue that any framework would need strong investor-protection measures and greater financial awareness to ensure fractional investing develops safely in India.
