Transfer of Share

Shares represent a shareholder’s ownership and stake in a company, and the transfer of these shares signifies a change in ownership.

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Quick and accurate Share Transfer services to formalize ownership changes without hassle.

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Updating share transfer forms & entries

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Who Needs Share Transfer

Share transfer is required when the ownership of shares in a company changes. It is common in Private Limited Companies, Startups, and Family-owned businesses.

1. Incoming or Exiting Shareholders

When a shareholder exits, sells, or gifts their shares to another person.

2. Startups Bringing in New Investors

Angel investors, VCs, or new partners purchasing equity.

3. Transfer Between Family Members

Transfers made for succession, gifting, or tax planning.

4. Co-founders Restructuring Ownership

Reallocation of shares between founders based on revised roles or equity agreements.

Share Transfer

PRIVATE LIMITED COMPANY SHARE TRANSFER

The Share Transfer Procedure in a Private Limited Company is a formal process through which ownership of shares is transferred from one individual or entity to another. Shares represent a shareholder’s ownership and stake in a company, and the transfer of these shares signifies a change in ownership.

In India, this process is regulated by the Companies Act, 2013 and the related Companies (Share Capital and Debentures) Rules, 2014, under the supervision of the Ministry of Corporate Affairs (MCA). The transfer must strictly follow the company’s Articles of Association (AOA) and comply with all legal requirements.

MEANING OF SHARE TRANSFER

A share transfer occurs when an existing shareholder voluntarily transfers their rights and interests in company shares to another individual or entity. This transfer may take place due to the sale of shares, gifting, succession, or other legal arrangements.

Essentially, shares are treated as movable property, meaning they can be transferred, sold, or gifted, subject to the restrictions mentioned in the company’s Articles of Association.

KEY REGULATIONS GOVERNING SHARE TRANSFER

The legal framework for share transfer in a private limited company is primarily governed by:

Section 56(1) & (3) of the Companies Act, 2013
Rule 11(1), (2), and (3) of the Companies (Share Capital and Debentures) Rules, 2014

These provisions ensure that the process maintains transparency, compliance, and the private nature of the company.

SHARE TRANSFER RULES IN A PRIVATE LIMITED COMPANY

In a Private Limited Company, the Articles of Association (AOA) play a central role in governing share transfer procedures. The AOA typically imposes certain restrictions to maintain control over the company’s ownership and prevent unrestricted trading of shares.

Pre-emptive Rights

Before transferring shares to an external party, the shareholder must first offer them to existing members of the company. The price of these shares is usually determined by the Board of Directors or Company Auditor, following the valuation method prescribed in the AOA. If current shareholders do not wish to purchase, the shares may then be offered to outsiders.

Director’s Discretion

The Board of Directors may have the authority to decline a proposed share transfer, ensuring that ownership changes align with the company’s internal control policies and maintain its private character.

KEY PARTICIPANTS IN THE SHARE TRANSFER PROCESS

The share transfer process involves the following parties:

Transferor: The existing shareholder who wishes to transfer the shares.
Transferee: The person or entity receiving the shares.
Company: The issuing entity responsible for recording and approving the transfer.
Initial Subscribers: The original shareholders listed in the Memorandum of Association.
Legal Representative: In the event of a shareholder’s death, their legal heir or executor assumes this role.

Exceptions to Form SH-4 Requirement

Certain transfers are exempt from using Form SH-4, such as:

Transfers made by directors or nominees on behalf of another body corporate under Section 187 of the Act.
Transfers involving government-owned corporations.
Pledging of shares as security for loans with banks or financial institutions.
Transfers of debentures following standardised formats.

IMPORTANT LEGAL PROVISIONS

Section 56 of the Companies Act, 2013: Specifies the timelines, procedures, and documentation requirements for share transfers.
Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014: Outlines the prescribed format and compliance for executing Form SH-4.
Time Limit: The company must register the transfer and issue a new certificate within 30 days of receiving the valid transfer documents.

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Documents Required for Share Transfer

The following documents are essential for completing a share transfer in a private limited company:

Applicant Type

Documents Required

1. Share Transfer Deed (Form SH-4):

Must be duly executed and signed by both the transferor and transferee.

2. Original Share Certificate:

To be submitted along with the transfer deed.

3. PAN Card (of Transferee):

A self-attested copy is mandatory.

4. Board Resolution:

Approving and authorising the transfer of shares.

5. No Objection Certificate (NOC):

From the transferor, confirming their consent.

6. Indemnity Bond:

To protect the company from any potential disputes arising out of the transfer.

7. Proof of Stamp Duty Payment:

As per the Indian Stamp Act and respective state rates.

STEP-BY-STEP PROCEDURE FOR SHARE TRANSFER

The procedure for transferring shares in a private limited company follows these structured steps:

Step 1: Review the Articles of Association (AOA)

Before initiating the process, the AOA must be checked for any transfer restrictions or conditions applicable to shareholders.

Step 2: Notify the Board of Directors

The shareholder intending to transfer their shares must formally notify the company’s Board of Directors about their intention

Step 3: Determine the Share Price

The price of the shares should be fixed as per the AOA typically determined by the Board or the Auditor based on fair valuation principles.

Step 4: Offer Shares to Existing Members

The company must first offer the shares to existing shareholders at the determined price.
If no existing shareholder is interested, the shares can then be offered to outsiders.

Step 5: Execute the Share Transfer Deed

A Share Transfer Deed (Form SH-4) must be filled, duly signed by both parties, and witnessed.
The deed must include the following:

Share details (number, class, face value)
Names and addresses of the transferor and transferee
Signature of both parties
Witness signature with full details

Step 6: Pay Stamp Duty

The share transfer deed must be stamped as per the applicable rate in the state where the company is registered.

Step 7: Submit Documents to the Company

The transferor or transferee must submit the following to the company’s registered office:

Duly executed Form SH-4
Original Share Certificate or Allotment Letter
Proof of Stamp Duty Payment

Step 8: Verification and Board Approval

The company’s Board verifies the documents and passes a Board Resolution approving the share transfer

Step 9: Issue of New Share Certificate

Once approved, the company cancels the old share certificate and issues a new one to the transferee within one month of receiving the complete documentation.