Procedure of Transfer of Equity Shares in India

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Shareholders are the real owners of the company, and they appoint Directors to manage the affairs of the company. Shares of the company held by shareholders are movable property and freely transferable to the other person or entity. As the number of shares decides the percentage of ownership by the shareholder, transferring of shares leads to transferring of ownership by a shareholder.

Transferability of shares of a private company is indeed restricted as mentioned in their Articles of Association because of protection of rights of the small group of investors. While shares of the public company are freely transferable.

Procedure of Transfer of Equity Shares in India

Meaning of Transfer of Shares

Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as represented in a share of the company) from a shareholder who wishes to not be a member in the company any more to a person who wishes of becoming a member. Thus, shares in a company are transferable like any other movable property in the absence of any expressed restrictions under the articles of the company.

Parties Involved in the Process of Transfer of Shares

The Parties involved in the process of Transfer of Shares are as follows:

  • Subscribers to the MOA (Memorandum of Association);
  • Legal Representatives or LR of the deceased;
  • Transferee;
  • Transferor;
  • Company (Whether Listed/ Unlisted);

Laws Governing Transfer of Equity Shares

  • The  Section 56 of the Companies Act 2013 acts as the Governing Laws for the Transfer of Shares. As per this section securities are movable property and are eligible to be transferred subject to the provisions of the Articles of Associations. Therefore, a shareholder has a right to freely transfer his/ her shares to anyone.
  • Further, Rule 11 of the Companies (Share Capital and Debentures) Rules 2020 and the provisions given under Model AOA in Table F of Schedule I act as the governing laws as well.

However, it shall be relevant to note that only the shareholders of a registered public limited company have the right to transfer their shares. That means the shareholders of a Private Limited Company do not have the right to transfer their shares.

Documents Required for Transfer of Equity Shares

The documents required for Transfer of Equity Shares are as follows:

  1. Notice sent by the Transferor to the Company;
  2. Board Resolution (BR) passed for considering the Notice sent by the Transferor to Company;
  3. Letter of Offer given by the Company to its Existing Shareholders;
  4. Dissent Letter from the Existing Shareholder;
  5. Share Transfer Deed in MCA Form SH 4 together with the Stamp Duty paid;
  6. Share Certificates;
  7. Board Resolution (BR) passed for registering Transfer of Shares;

Transfer Shares

Procedure for transfer of shares as per the Companies Act, 2013

  • Firstly, the transfer deed needs to be obtained in the prescribed form i.e. Form SH-4, endorsed by the prescribed authority.
  • The instrument of transfer may not be in the prescribed form (Form SH-4) in the following cases:-

a. Where a director or nominee transfers shares on behalf of another body corporate under section 187 of the Companies Act, 2013;

b. Where a director or nominee transfers shares on behalf of a corporation owned or controlled by the central or state Government;

c. Shares transferred by way of deposit as a security for repayment of any loan or advance If they are made with any of the following:-

i. State Bank of India; or

ii. Any scheduled bank; or

iii. Any other banking company; or

iv. Financial Institution; or

v. Central Government; or

vi. State Government; or

vii. Any corporation held by the Central or State Government; or

viii. Trustees who have filed the declarations.

d. For transferring debentures, a standard format can be used as the instrument of transfer.

  • Get the Articles of Association in case of shares, trust deed in the case of debentures and transfer deed registered either by the transferor and the transferee or on their behalf in accordance with the provisions of the Companies Act, 2013.

  • According to Indian Stamp Act and stamp duty notification in force in the state concerned, the transfer deed should need to have stamps. The present stamp duty rate for transfer of share is 25 paise for every one hundred rupees of the value of the share or part thereof. That means for shares valued Rs. 1050, the stamp duty will be Rs. 2.75.

  • Check that the stamp affixed on the transfer deed is cancelled at the time of or before the signing of the transfer deed.

  • A person who gives his signature, name and address as approval for transfer must see the transferor and the transferee sign the share/debentures transfer deed in person.

  • The relevant share/debenture certificate or allotment letter with the transfer deed must be attached and sent to the company.

  • In case the application made by the transferor, is for partly paid shares, the company has to duly notify the amount due on shares/debentures to the transferee. Also, a no objection from the transferee is required within two weeks from the date of receipt of the said notice.

  • Affix the same value stamp on a written application if signed transfer deed has been lost. In this case, the board may register the transfer on specific terms of indemnity as it thinks fit.

  • If the shares of the company are listed in a recognized stock exchange, then the company cannot charge any fee for registration of transfers of shares and debentures.

Provisions relating to Stamp Duty

As per Companies Act, 2013 transferability of shares should be duly stamped, and stamp duty is paid by the seller of the shares.

Finally, every company, unless prohibited, shall issue within one-month certificates of shares transferred after the application for the registration of transfer of such shares is received.

Time Limit on Issuing Share Transfer Certificate

One has to deliver all the share transfer certificates by the company within a period of one month from the date of receipt of the share transfer agreement or the share transfer certificate by the company. Unless the company can’t deliver due to an order of the Court or instruction by other authorities.

Penalty for Non Compliance

Where any default is made in complying with the provisions related to transfer of shares, the company shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/

Conclusion

In a nutshell, the “Transfer of Securities” denotes a process in which a shareholder or a member of a company voluntarily handover his/her shares back to the company. In other words, a shareholder decides to terminate his/ her shareholding in a company.

Further, the Section 56 of the Companies Act 2013 acts as the Governing Laws for the Transfer of Shares. Moreover, only a public company is allowed to transfer its shares.

In case of any other doubt, reach out to Legal Window, our experts will not only give a lucid understanding but will assist you in the process of Transfer of Equity Shares as well.

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CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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