Share Transfer

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.

Initiation of Share Transfer Process

The process of transfer of shares is initiated by the following steps as given:

Step 1: Reviewing the Articles of Association (AOA)

The Articles of Association (AOA) of the private limited company must be examined and reviewed. This aids in addressing any prevalent restrictions.

Step 2: Providing Notice to Directors

The directors of the company must be notified by the shareholders relating their willingness to transfer shares to a private limited company.

Step 3: Price Depiction

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.

Step 4: Notification of the Shareholders about Share Availability

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.

Share Transfer Procedure in Private Limited Company

The steps for the process of transfer of shares are given in the following steps:

1. Intimation

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:

• Where a director or nominee transfers shares on behalf of another body corporate under a given section of the Companies Act, 2013;
• Where a director or nominee transfers shares on behalf of a company owned or controlled by the central or state government;
• Shares are transferred by way of deposit as a security for repayment of any loan or advance. The share transfer fees are as per the stamp duty. If the transfer is made with any of the following:
  

1. State bank of India; or
2. Any scheduled bank; or
3. Any other banking company; or
4. A financial institution; or
5. Central government; or
6. State government; or
7. Any corporation held by the Central or State government; or
8. Trustees who have filed the declarations

2. Duty of the Company

• The company must notify other members as regards the availability of shares and the price at which such shares would be available to them.
• Such price is generally determined by the directors or the auditors of the company as per the book value of the share transfer.
• The company shall also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
• If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.

3. Execution Form

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:

• Duly stamped
• Dated
• Specifying the name, father’s name, address and occupation, if any, of the transferor and transferee.
• Folio No. of both transferor and transferee.
• Distinctive number, Certificate number of share transfer.
• Number of transfers of shares
• The nominal value of shares, Consideration received
• Executed by or on behalf of the transferor and the transferee.
  The time period for the deposit of the Instrument for Transfer with the company
• An instrument of transfer of shares in Form SH-4 with the date of its execution specified and shall be delivered to the company within sixty days from the date of execution by or on behalf of the transferor and or on behalf of the transferee of the company.
• Where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the share transfer deed on such terms as indemnity as the board may think fit.

4. Share Certificate and Letter of Allotment

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.

5. Board Resolution

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.

6. Delegation of Power

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.

As per the Listing Agreement

Power of transfer should be delegated to an office or a committee and the transfer agent of share should attend to the work.

7. Issue of Share Transfer Certificate:

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.

Important Note:

• Articles of a private company shall restrict the right to transfer the company’s shares.
• Cancel the stamps affixed at the time of before signing the transfer deed.
• The signatures of the transferor and the transferor and the transferee in the transfer deed of shares must be witnessed by a person giving his signature, name and address.
• Transfer of share cannot be declined if minor details are not provided in the share transfer form.

Documents Required for Company Transfer of Shares

The following are the documents that are required for the transfer of shares:

• Notice of transferor by the Private limited company
• Board Resolution was taken by the Company regarding the transfer of shares
• Certificate of Incorporation of the company
• Memorandum of Association (MOA) and Articles of Association (AOA) of the company
• Offer letter from an existing shareholder of the company
• Approval from Existing shareholders related to the transfer
• Stamp duty paid
• Deed of transfer of the share of the company
• Other resolutions related to the transfer of share
• Any certificates related to the transfer.

Transfer Restriction for Share

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:

1. Right of Preemption

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.

2. Refusal by the director

The Directors possess the power to refuse resignation of the transfer of shares considering definite circumstances marked in the Articles of association (AOA).

Transfer deed in physical form

The deed of transfer should be ‘duly stamped’ if the transfer of shares is in physical form.

Transfer in Demat form

Transfer under Demat, stamp duty is not required.

Value of stamp duty

The stamp duty payable is Rs. 25 paisa per Rs. 100/- of consideration and not on the basis of the face value of shares.

Adhesive stamp

• Stamp duty is payable by adhesive stamps.
• Thus, ordinary stamps which are available in post offices are not permissible for the transfer of shares.
• The adhesive stamp must contain the words ‘Share Transfer’ on them.

The value mentioned in the transfer form for purpose of stamp duty

• It was decided that value is required to be mentioned on the transfer form for the purpose of stamp duty.
• If stamp duty is not payable by the transferee. The transfer deed will be valid even if the value is not mentioned in the transfer deed.

Stamps can be affixed on a separate paper and attached to transfer

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.

No stamp duty payable for transfer to nationalized banks

• A Company with a share capital The Company should not register the transfer of securities of the company or member’s interest other than beneficial owners without a proper instrument of transfer within a time period of 60 days from the date of execution.
• Application by transferor alone The transfer shall not be registered until the company gives notice of the application to the transferor and the transferee gives a no-objection certificate within two weeks from the date of sending the notice.
• Company shall deliver certificates of all securities allotted or transferred or transmitted in the following cases and within the following mentioned time limits of share transfer form MCA
  

1. In case of subscribers to memorandum – Within a period of two months from the date of incorporation.
2. In case of allotment of any of its shares – Within a period of two months from the allotment date.
3. Receipt by a company of the instrument of transfer or intimation of transmission – Within a period of one month from the date of receipt.
4. Allotment of debenture – Within a period of six months from the date of allotment.