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Share Transfer of a Company - An Overview

Securities of the company can be in the form of shares, bonds, and debentures. They are treated as movable property. The transfer of securities is possible through any contract or arrangement between two or more persons. The provisions of the Companies Act deal with the transfer and transmission of securities.

There is a difference between the transfer of shares and the transmission of shares.

Transfer of shares is a voluntary handing over of the rights, and probably the duties, by the member of a company to another person.

Transmission of securities means loss of title on these securities due to death, succession, inheritance, bankruptcy, or we can say transferring title of share by the operation of law.

What is Share Transfer?

The provisions related to transferring of shares are mentioned under section 56 of the Companies Act, 2013. The procedure of transfer of shares is different for private companies and public companies.

In a private company (as per section 2(68) of the Companies Act,2013) transfer of shares is guided by an article of association.

In public company Section 56 to 59 of the Companies Act, 2013(3) provides for the procedure of transfer of shares of a company.

We can conclude that the share transfer agreement can have consideration and should be guided by the articles of association incase of Private Limited Company

Who are all involved in Share Transfer of a Company?

Subscribers to the memorandum, deemed to be the first member of the company.

• Legal Representative, in case of a deceased.
• Transferor (one who disown the title)
• Transferee (one who receive rights over share)
• Company (whether listed/ unlisted).

Shares can be transferred by either by way of gift or sale. A Shareholder can alter his/her status of being a shareholder by way of transfer. So, as long as a company has enough shares, it's possible to transfer shares in a limited company any time after incorporation.

1. Having equity shares of a company gives you part of ownership in that company.
2. A shareholder can participate in important decision-making of the company via the right to vote.
3. Shareholder gets dividend whenever the company declares.
4. Share transfer leads to capital appreciation.
5. Share have the feature of limited liability.
6. Share transfer is a beneficial option when a shareholder does not wish to continue as shareholder of the company.

Checklist for transfer of shares

1. A Drafted notice by the transferor showing the purpose of transfer of his share.
2. Stamped agreement in form SH-4 duly signed by transferor and transferee. According to the Indian Stamp Act and stamp duty notification in force in the state concerned, the transfer deed should need to have stamps.
3. The stamp value will be determined on the value of shares transferred and that stamp should be attached to the transfer agreement.
4. The period for the security of devices for transfer with the firm should be notified.
5. Documents such as share certificate and letter of distribution.

Board resolution is essential for the transfer of shares in case of private limited company.

1. Well drafted notice by the transferor to the company.
2. Board resolution after getting the notice from the transferor.
3. Share transfer agreement that is SH-4 form which is duly stamped.
4. Objection certificate from the present shareholders.
5. Offer letter delivered to the current shareholder by the company.
6. Share certificates.

The Ownership of a private limited company is determined by the shareholding of the Company

To initiate the transfer of shares following steps should be followed:

1. Authorisation for transfer of shares by the Articles of Association (AOA), incase of a private limited company
2. Notice from the transferor and the purpose thereof for transferring must be provided.
3. Determination of the price as per Articles of Association at which the shares of the Company will first be offered to present shareholders of the Company. Usually, this price is determined by the Directors of the Company or an Auditor of the Company.
4. If any of the present shareholders come forward for the purchase of shares, such shares must be allotted to them.
5. In case no present shareholder is interested or excess shares are available, the same can be transferred to the outsider.

Share Transfer of a Company by Physical Mode

For Private Limited Company

For transferring the share of a private limited company, the following steps must be followed:

Step 1: Obtain the share transfer deed in the prescribed format, which is SH-4.

Step 2: Execute the share transfer deed duly signed by the Transferor and Transferee.

Step 3: Stamp the share transfer deed as per the Indian Stamp Act and Stamp Duty Notification in force in the State.

Step 4: Having a witness signature on the share transfer deed with his/her name and address is mandatory.

Step 5: Attaching the share certificate or allotment letter with the transfer deed and delivering the same to the Company.

Step 6: The company must process the documents and if approved, issue a new share certificate in the name of the transferee.

For other companies

Transfer of securities held in physical mode has been discontinued with effect from April 1, 2019, but investors have not been barred from holding shares in physical form. This was a circular given SEBI.

Timelines for Share Transfer of a Company

The company shall deliver certificates of all securities allotted or transferred in the following cases and within the following mentioned time limits:

In case of subscribers to the memorandum, within a period of 2 months from the date of incorporation.

In case of allotment of any of its shares, within a period of 2 months from the allotment date.

Receipt by the company for transfer deed, within a period of 1 month from the date of receipt.

Allotment of debenture, within a period of 6 months from the date of allotment.

Penalties

Any contravention of Provision of the Companies Act 2013 would lead to the following penalties:

Were any default company and officer in default shall be liable to fine of Rs.50,000