How to transfer Shares in a Company

The Transfer of shares means voluntary handing over of all the rights and the duties of a member in the Company and also from a shareholder who is not willing to be a member in the company and any more to a person who is willing to become a member.

Normally, the securities of a company are freely transferable except in case of any restrictions imposed on the transfer of shares of the private company in their articles. As the shares of private Company are not freely transferable these restrictions, if any are added for protecting the interest of security holders.

Thus, securities in a company can be freely transferred like any other movable property in the absence of any expressed restrictions under the articles of the company.

Legal Window can help you in implementing the transfer of such shares just by following some basic steps. You may get in touch with our team on 072407-51000 or email admin@legalwindow.in for understanding the legal requirements of the same we have tried to enlighten the criteria in the article.

As per Section 56 of the Companies Act, 2013 which deals with the transfer of shares of the company and other securities shall be registered by the company whose shares are being transferred by executing a proper instrument of transfer form in Form No. SH 4.

The executed Form SH 4 should be duly stamped with the adequate value, dated by or on behalf of the transferor and the transferee.

In this article we will study the Transfer of shares of a private company , the transfer of shares of Private Limited Company are governed by its Articles of Association of the Company.

There are two ways of transfer of shares i.e. either by way of sale or by way of gift. The procedure of transfer of shares of public and the private company.

Procedure for transfer of shares by private limited company:

• INTIMATION BY WAY OF NOTICE: The Transferor shall give a notice in writing to the Company for his intention to transfer his shares.

• DUTY OF THE COMPANY: After being informed by the transferor the company shall in turn notify the other members with regard to the availability of shares and the price at which such shares will be available to them.
  Such price is usually determined by the directors or the auditors of the Company in accordance with the book value of shares.
  The company shall intimate the members regarding the time limit allowed within which they can communicate their option to purchase shares on transfer.
  If none of the members agrees to buy shares then such shares can be transferred to an outsider and the company will have no option other than to accept such transfer.

• EXECUTION OF FORM SH-4: The Company shall execute a Share transfer deed in Form SH-4 as prescribed by Companies Act, 2013 which is duly executed both by the transferor and the transferee and should
  • Properly stamped
  • Properly Dated
  • clearly stating the Name, Father’s Name, Address and Occupation of the transferee & Transferor.
  • state the Folio No. of both the Transferor and Transferee.
  • Mention the Distinctive No, Certificate No. of share transferred of Share Transfer.
  • The Nominal Value of Shares and the Consideration Received.
  • be executed by or on the behalf of the transferor and the transferee.

• TIME PERIOD ALLOWED FOR DEPOSIT OF FORM SH-4 FOR TRANSFER WITH COMPANY : The instrument for transfer of shares i.e. Form SH-4 along with the date of its execution mentioned in is required to be delivered to the company within sixty (60) days from the date of execution by or on the behalf of the transferor or the transferee.
  If the instrument of transfer has been lost or warned out or has not been delivered within the specified time, then the Company must register the transfer on such terms and conditions as to indemnity considering the of Board.
  The share transfer stamps should be affixed in accordance with the Value of share on the transfer deed:

• SHARE CERTIFICATE AND LETTER OF ALLOTMENT: The Share certificates allotted to the transferor shall be submitted with the company along with the share transfer deed and where no such share certificate exists then a letter of allotment must be submitted with the company.

• BOARD RESOLUTION: Once all the documents are received by the company along with the transfer deed it shall verify the deed and documents and the Board of Directors shall in a meeting pass necessary resolutions for acceptance of the same. After passing the necessary Board resolution shall enter the name of the transferee in the registers of member as the beneficial owner of such shares

• ENDORSEMENT OF SHARE CERTIFICATE AFTER TRANSFER: The Company within one month from the date of passing the Board Resolution shall issue a share certificate in the favour of transferee in accordance with the section {56(4)(c)}. and such Certificates shall be endorsed on the name of Transferee behind the Share Certificates.

POINTS TO BE NOTED:

• The Articles of the Private Limited Company shall restrict the right to transfer the company’s shares.
• The stamps affixed must be cancelled at the time or before signing of the transfer deed.
• The signatures of the transferor and transferee in the share transfer deed shall be witnessed by a person.

Duty of the Company:

• The Company can register the transfer of Shares on the basis of the “Indemnity Bond” is any decided by the Board of Directors of such Company.
• As a good corporate governance practice, the company should send a registered letter to the transferor for inviting objection, if any.
• If the transferor doesn’t respond within a reasonable period as prescribed in the notice the transfer may be affected on obtaining the indemnity bond.

STAMP DUTY ON SHARE TRANSFER:

• Transfer Deed in Physical Form: If the transfer is made in physical form then it must be ‘duly stamped in accordance with the value of shares.
• Transfer in Demat Form: The stamp duty is not required if transferred under Demat.
• Value of Stamp Duty: The value of Stamp duty payable shall differ from state to state

Adhesive Stamp:

• Stamp duty shall be paid using the adhesive Stamps.
• The Adhesive stamp should state the words “Share Transfer” on them.
• The ordinary stamps as available from the post offices etc. are not permissible for share transfer.

Stamps can be affix on a separate paper and attached to transfer:

• If there is inadequate space on share transfer form , the stamps can be affixed on a Separate sheet of paper which are required to be duly cancelled and is to be attached to the transfer deed with cross reference.

Cancellation of Stamp:

• The adhesive stamps should be cancelled by way of drawing lines across or in some other way. However, the value of the stamp should be visible.
• If the share transfer deed bears the stamps but is not cancelled, hence the transfer can’t be recorded on basis of such deed.

PROCEDURE FOR TRANSFER OF PARTLY PAID UP SHARES

• The Board of Directors may decline to register the transfer if:-
  • The transfer of partly paid shares to a person of whom they do not approve; or
  • Any transfer of shares on which the company has marked a lien
• The partly paid up shares if received for transfer, the Company shall give notice to the transferee in Form -SH-5 and the time of Two week shall be given for receiving objection, if any. The Notice is not required if the partly paid shares are lodged by the transferee.
• In accordance with the Rule 11(3) if the No Objection Certificate is not received from the transferee then the transfer can’t be recorded.
• The Liability of payment of the balance amount lies with the transferee.

IN CASE OF REFUSAL BY COMPANY

• The only restrictions that can be placed on the transfer of securities are those specified in law or in the Articles of the Company.
• There is no general power given to the company to refuse the share transfer.
• The Power of refusal to register the transfer of shares is to be exercised within thirty (30) days by the company from the date on which the instrument of such transfer or the intimation of transfer, as the case is delivered to the Company.