All About Transfer of Shares in physical format in case of Private Company

The transferability of a company’s shares is a crucial feature. Moveable property includes shares and debentures. They can be transferred in the ways specified by the company’s articles, particularly the shares of any member of a public company. Any agreement or contract between two or more people has the potential to result in the transfer of securities. The provisions under Companies Act, 2013 cover the transfer and transmission of securities. Loss of title to securities owing to death, succession, inheritance, bankruptcy, etc. is referred to as transmission of securities. It is not transfer, to put it briefly, but before we shall move upon Share Transfer in physical format in case of Private Company, let us first understand Share of a company.

Meaning of Share of a Company

An equity ownership interest in a company is represented by a share. Dividends from any earnings the company makes are owed to the shareholders. They also bear the brunt of any losses the business may sustain. To put it simply, if you possess shares in a company, you have a stake in the issuing company proportional to the number of shares you have purchased.

There are two other categories of shares. Which are:

• Equity shares
• Preference shares

Their differences are determined by their profitability, voting privileges, and handling during a liquidation.

Now, let us discuss about Share Transfer in physical format in case of Private Company.

Meaning of Share Transfer

Transfer of shares refers to the voluntary transfer of the title of shares from one party to another. Shares of a company are generally freely transferable, though there may be certain restrictions on the transfer of shares of a private company as stated in the articles. The transfer of shares is governed by Section 56 of the Companies Act, 2013.

A Transfer shall not be registered by a Company unless it is accompanied by a proper instrument of Transfer in physical form in Form No. SH-4, duly stamped, dated, and executed by or on behalf of the Transferor and the Transferee. Please keep in mind that the Indian Stamp Act, 1899 specifies the stamp duty to be paid on the transfer of shares. Please be advised that the Stamp Duty payment on Transfer of Shares has been amended by powers conferred by Section 11 of the Finance Act, 2019 (7 of 2019), and that the Central Government has set January 9, 2020 as the date on which the provisions of Part 1 of Chapter IV of the said Act will enter into force.

Unless prohibited by law or an order of a court, tribunal, or other authority, every company shall deliver the certificates of all securities transferred within one month of receipt by the company of the instrument of transfer. The transfer or interest of a deceased person in a company made by his legal representative, who is not a holder thereof, is valid as if he were the holder at the time of execution of the Transfer instrument.

Procedure for Initiation of Share Transfer

The procedures below must be performed in order to start the share transfer process:

• Step 1: The Private Limited Company’s articles of association must be evaluated, and any restrictions must be resolved.
• Step 2: The shareholder must inform the company’s director in writing of their intention to transfer their shares.
• Step 3: Establish the price in accordance with the Articles of Association at which the Company’s shares will be first sold to its current shareholders. (Usually, the company’s board of directors or an auditing firm sets this price.)
• Step 4: After that, the company must inform the other shareholders of the availability of shares, the deadline for purchases, and the price at which shares are being offered.

If any current shareholders approach the company to purchase shares, those shares must be allocated to them. The shares can be transferred to the outsider in the event that the current shareholder is not interested or there are extra shares available.

How to Transfer Shares in a Private Limited Company?

The following steps must be taken in order to complete the share transfer:

• Step 1: Obtain a share transfer deed in the format specified.
• Step 2: Sign and return the share transfer deed to the Transferor and Transferee.
• Step 3: Stamp the share transfer deed in accordance with the Indian Stamp Act and the State Stamp Duty Notification.
• Step 4: Have a witness sign the share transfer deed, including his or her name and address.
• Step 5: Deliver the transfer deed and the share certificate or allotment letter to the Company.
• Step 6: The company must review the documents and, if approved, issue a new share certificate in the transferee’s name.

Points to Ponder

It is possible for parties to execute the following Additional documents for their Record for Transfer of shares as a practise for good corporate governance and to protect the interests of parties:

• Take Note or Board Resolution Transfer of shares Pass a Board resolution approving and executing the transfer of shares and recording it in the transfer register, or take note of it in the meeting held after the transfer of shares.
• Agreement on Share Transfer is an agreement between the Transferor and Transferee of shares that confirms the Transfer. Details of transferred shares, mode of payment, and so on are included. Stamp Paper must be included. The amount of stamp paper will be determined by the Indian Stamp Act, 1899.
• The price at which the transfer occurred is included in the Sale Bill Advertisement. Both parties sign the same document.
• Receipt is proof signed by the Transferor that the Transferee has paid the full amount of consideration.

Endnote

A private limited company’s share transfer process is complicated. Shareholders who want to transfer ownership can consult with a financial consulting company to learn more about the legalities of the process. These companies can also assist with the preparation of share transfer deeds and the execution of the transfer procedure. Using the services of such companies allows shareholders to save valuable time and effort. They can concentrate on other projects while the consultancy handles the necessary share transfer procedures.

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