SEBI Seeks Inclusion of Fractional Shares in Companies Amendment Bill 2026: What It Means for Investors and Companies

SEBI Recommends Fractional Share Recognition

The Securities and Exchange Board of India (SEBI) has formally asked the Ministry of Corporate Affairs (MCA) to recognise the issuance and holding of fractional shares within the Companies Amendment Bill currently pending in Parliament. A fractional share is a portion of a single equity share, typically less than one full unit, allowing investors to own a stake in high-value securities without purchasing an entire share.

The request comes after the Corporate Laws (Amendment) Bill, 2026, introduced in Lok Sabha on March 23, 2026, omitted any provision for fractional ownership. Government sources have confirmed that the exclusion was deliberate, driven by concerns that fractional shares without voting rights could weaken minority shareholder protections under the existing statutory framework.

Why Fractional Shares Matter for Capital Markets

Fractional share ownership has gained traction globally as markets in the United States, United Kingdom, and the European Union already permit brokers to offer fractional units. The mechanism allows retail investors to participate in companies whose per-share price may otherwise be prohibitive. For instance, a share trading at Rs 50,000 could become accessible to an investor with only Rs 5,000 through a 0.1 fractional unit.

In practice, the push from SEBI reflects a broader strategy to deepen retail participation in Indian capital markets. India's retail investor base crossed 15 crore demat accounts in 2025, but participation remains concentrated in mid-cap and small-cap stocks where per-share prices are lower. Fractional shares could redirect retail flows into large-cap and blue-chip securities, improving market depth and reducing volatility in smaller segments.

The Minority Shareholder Rights Concern

The Company Law Committee, in its 2022 report, had recommended allowing companies to issue, hold, and transfer fractional shares for certain classes of companies. For listed entities, it suggested that SEBI prescribe the detailed framework. However, the key legal difficulty is Section 47 of the Companies Act, 2013, which ties voting rights to equity shares on a one-share-one-vote basis for ordinary resolutions and a poll.

Practitioners should note that if fractional shares carry no voting rights, they could create a two-tier ownership structure. Holders of fractional units would have economic exposure (dividends, capital appreciation) but no governance voice. This raises questions under Sections 100 to 105 of the Companies Act, 2013 (quorum, proxies, and voting on a show of hands), all of which presuppose whole-share ownership.

The Supreme Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981) 3 SCC 333 emphasised that shareholder voting rights constitute a fundamental property right, and any dilution must be justified by compelling statutory purpose. Similarly, in Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd. (2021) 9 SCC 449, the Court underscored the importance of minority shareholder protections in corporate governance disputes.

Regulatory Models Under Consideration

SEBI's recommendation envisions a model where depositories (NSDL and CDSL) hold fractional units in a pooled or beneficial ownership structure, with the broker or depository participant acting as the legal holder of the underlying full share. Two approaches are being considered:

What This Means for Market Participants

If Parliament accepts SEBI's recommendation, several downstream regulatory changes would follow. SEBI would need to amend the SEBI (Depositories and Participants) Regulations, 2018 to accommodate fractional holdings in demat form. Stock exchanges would require modifications to their trading systems to support sub-unit order sizes. Tax implications under Section 112A of the Income-tax Act, 1961 (long-term capital gains on listed equity) would need clarification for fractional disposals.

In practice, brokers offering fractional trading internationally have faced challenges with corporate actions such as rights issues, bonus issues, and stock splits. When a company declares a 1:1 bonus, a holder of 0.5 shares would be entitled to 0.5 bonus shares, creating recursive fractional holdings. The depository system would need robust back-end capabilities to manage these scenarios at scale.

Watch For

The Corporate Laws (Amendment) Bill, 2026 has been referred to a Joint Parliamentary Committee (JPC) for detailed examination. Market participants should watch for whether the JPC recommends inserting a new section (potentially Section 44A) into the Companies Act, 2013 to enable fractional share issuance. SEBI is also expected to release a consultation paper on the operational framework in Q3 FY 2026-27, covering depository mechanics, tax treatment, and investor protection safeguards.

Sources and References

1. SEBI recommendation to MCA on fractional shares, Business Standard, August 24, 2026

2. Corporate Laws (Amendment) Bill, 2026, PRS India Legislative Brief

3. Company Law Committee Report, 2022, MCA

4. Section 47, Companies Act, 2013 (Voting rights)

5. Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981) 3 SCC 333

6. Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd. (2021) 9 SCC 449

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance on securities regulation or corporate governance, consult a qualified legal professional.