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Share Transfer means the voluntary handing over of the rights and duties of a member of a company. The rights and duties of the transfer take place from a shareholder who doesn’t want to be a member of the company to a person who wants to become a member of the company.
Hence, the transfer of shares is like any other movable property in the absence of any specific restrictions under the articles of the company.
The persons involved in the transfer of shares are the subscribers to the memorandum, legal representatives in case of a deceased, transferor, transferee and the company whether listed or unlisted.
The process of transfer of shares is initiated by the following steps as given:
The Articles of Association (AOA) of the private limited company must be examined and reviewed. This aids in addressing any prevalent restrictions.
The directors of the company must be notified by the shareholders relating their willingness to transfer shares to a private limited company.
The price must be determined by the AOA at which the company’s shares will be first offered to the existing shareholders of the organization. This price is generally decided by the auditors and the directors of the company for share transfer section 56 of the Companies Act, 2013.
The organization must notify other shareholders regarding the share availability, the price of the available shares and the last date to buy the shares. It is a voluntary transfer of shares from an existing shareholder. The right to transfer shares is restricted by the Articles of Association (AOA).
The right to transfer shares to a private limited company cannot be completely prohibited or banned on the transferability of shares. If the existing shareholders are purchasing the shares, the shares will be allocated to them. In the absence of a shareholder’s interest, the same is transferred outside.
The steps for the process of transfer of shares are given in the following steps:
Transferor should give a notice in writing of his intention to transfer his share to the company. The transfer deed may not be in the prescribed Form SH-4 in the following cases:
Get the transfer of shares to a deed in Form SH-4 duly executed both by the transferor and the transferee. The Form SH-4 must be:
Share certificate must be registered with the company or where no such share certificate exists then a letter of allotment must be registered with the company with the instrument of transfer.
Once the company will receive a deed of transferring shares along with requisite documents the company will check the deed and documents and then pass a resolution for acceptance of the same in the Board meeting of the company. After passing the Board resolution enter the name of the transferee in the register of the member as the beneficial owner of such shares. If the documentation for share transfer online is in order, the board shall register the transfer by passing a resolution.
The authority to transfer shares can be delegated to a director and he can consider a ‘One man committee’. The Board of company can place restrictions on the powers of the Committee. For instance, Allowing transfer up to prescribed numbers like up to 1,000 shares. The Board or committee can also approve transfers by circular resolution.
Power of transfer should be delegated to an office or a committee and the transfer agent of share should attend to the work.
The Company will within one month of the passing of the Board resolution issue a share certificate in the favor of the transferee. The company endorses the name of the Transferee behind the share certificates.
The following are the documents that are required for the transfer of shares:
There are two forms of restrictions concerning the right of shareholders to share transfer of a private company. The Companies Act, 2013 provides a relevant section that restricts the transfer of shares and prohibits the invitation to the public to subscribe to any securities of the company. These rights are in two forms given as follows:
When a shareholder is willing to sell his shares, these shares must first be offered to the existing members of the private company at a price outlined by the auditors and the directors of the company. The share’s value can be depicted considering the method or formula prescribed in the articles of association (AOA). If the existing shareholders are not interested in buying those shares, they can be freely transferred to any outsider.
The Directors possess the power to refuse resignation of the transfer of shares considering definite circumstances marked in the Articles of association (AOA).
The deed of transfer should be ‘duly stamped’ if the transfer of shares is in physical form.
Transfer under Demat, stamp duty is not required.
The stamp duty payable is Rs. 25 paisa per Rs. 100/- of consideration and not on the basis of the face value of shares.
If space on the transfer share form is inadequate, stamps can be affixed on a separate sheet of paper, duly cancelled and attached to the transfer deed with cross reference.
A board resolution is passed in the board meeting and the name of the transferee is entered in the register of the members.
The company shall issue a share certificate within one month of passing the Board resolution. The transferor and transferee must sign the transfer deed of shares with the witness.
In addition to registration or incorporation, a business may require other registrations depending on the business activity undertaken. Talk to an Advisor to find out registrations your business may require post registration.
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