Share Transfer
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Share transfer from one person to another person or one person to many or many to one person.
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Share Transfer
Ownership in a Private Limited Company in India is determined by the distribution of shares among its shareholders. This structure allows for the infusion of new investors or the transfer of ownership by facilitating the transfer of company shares. This transferability is a pivotal characteristic, as shares and debentures are considered movable property, enabling their transfer as outlined in the company's articles, particularly for members of public companies.
The process of share transfer is governed by the Companies Act, with its provisions primarily addressing the transfer and transmission of securities. Transmission, arising from events like death, succession, inheritance, or bankruptcy, results in the transfer of securities' titles.
The transfer of securities necessitates a contract or arrangement between parties involved, typically formalized through a Share Transfer Deed. The Companies Act plays a central role in regulating and overseeing these processes, ensuring compliance and legality.
Transmissions of securities, prompted by circumstances such as death, succession, inheritance, or bankruptcy, involve the transfer of ownership rights. This underscores the significance of adhering to legal frameworks outlined in the Companies Act to validate and formalize these changes in ownership. In essence, the transferability of shares is integral to the functioning of Private Limited Companies in India, providing a mechanism for attracting new investors, passing control, and responding to various events that trigger changes in ownership. Strict adherence to legal provisions ensures the smooth and legitimate transfer and transmission of securities within the regulatory framework.
What is share transfer?
The transfer of shares involves the voluntary handover of both rights and potentially duties of a company member. This transition occurs willingly, with a shareholder expressing the desire to cease being a member of the company and transferring these rights and duties to an individual willing to become a member.
Shares in a company are, therefore, transferable much like any other movable property, subject to the absence of expressed restrictions outlined in the Articles of the Company. The process facilitates the fluid movement of ownership interests, allowing for the seamless transition of membership from one shareholder to another, contingent upon the regulatory framework and any limitations specified in the company’s articles.
Who is involved in Share transfer?
- Subscribers to the memorandum
- The legal representative in the case of a deceased
- Transferor
- Transferee
- Company (Whether listed or unlisted)
Procedure to transfer the shares of Private Limited Company
There are certain restrictions over the transfer of the shares of the Private lImited company the following procedure should be followed to transfer the shares:
- At first, it is necessary to obtain the share transfer deed as required in the prescribed format
- This deed needs to be duly signed by the transferor and the transferee.
- Stamp this transfer of share transfer deed with his or her name, address, and signature.
- The transfer document or the allocation letter is to be attached to the share certificate and sent to the company
- The company should process the paperwork and the transferor should be granted a new certificate in case if it is accepted.
- The transferor will request the company to transfer his shares.
- A notice will be sent by the company to all the existing members that the above-mentioned shareholder has shown the intention to transfer the shares.
- In case if no existing member has shown interest in the company then the company will intimate the transferor that he can sell his shares to a nonmember.
Then the transferor will transfer the shares by the following process:
Form SH-4: This is the most important instrument of transfer through which the process is initiated. The transferor will have to submit the SH4 that is duly executed, dated, and stamped to the company. The SH4 contains the following information:
- Execution date
- CIN of the company
- Name of the Company
- Class of the securities
- Nominal value/ Amount called up/ Amount paid up of the securities.
- The securities that are to be transferred at a consideration or Rs... Distinctive no. of shares, certificate no.
- Name of the transferor along with his Folio No, Signature. Also the same should be witnessed.
- Name of the transferee along with the details like Father’s name, address, Email id, occupation, Folio, Signature.
- The instrument of the transfer should be duly stamped as per the Indian Stamp Act. of 1899.
- Once all the details are submitted then the same company will see if everything is in place and will register the same. A share certificate is issued and endorsed, to the transferee within one month of the receipt of the Instrument of Transfer.
Transfer of Shares by Physical Mode:
1. Transfer Deed:
- The transfer of share ownership involves the execution of a share transfer deed, a legally binding instrument. This document must be duly signed by both the transferor and transferee and submitted to the company along with the relevant share certificate. In the physical mode, the transfer should be executed using Form SH 4.
2. Acknowledgement:
- Upon receipt of the transfer documents, some companies send an acknowledgment to the transferor, outlining a checklist for document scrutiny. In some cases, transfer receipts may be issued. If the transfer application is made by the transferor, and payment is partially made, the company should not object to the transfer within two weeks of receiving notice.
3. Scrutiny:
- A thorough scrutiny of all transfer documents is conducted to ensure their completeness. If any document is found to be inadequate, it is returned to the transferee. Discrepancies in the signature of the transferor are addressed, and documents are returned if necessary.
4. Approval:
- The Board of Directors or a committee must approve every share transfer. The right authority is required for approval. If the Articles of Association empower the board to delegate approval power, it may be delegated to a committee excluding company directors.
5. Registration:
- The completion of a share transfer requires registration. The share transfer form, wherein the transferee agrees to accept the shares, becomes a legal contract with the company. Once approved, the transferee’s name is entered into the company registry, officially qualifying them as a member. Although not statutorily required, maintaining a register of transfers is common practice.
6. Delivery of Share Certificate:
- The transfer becomes effective only upon registration by the company. The company must deliver the share certificate within one month of receiving the relevant transfer instrument. The instrument must be endorsed with the transferee’s name.
7. Timelines:
- Various timelines are specified, such as a 60-day restriction on registering share transfers for companies with share capital. The company should not register transfers to beneficial owners within 60 days of execution. Notification to the transferor by the company should occur within two weeks of the receipt.
8. No Opposition Certificate:
- Specific timelines are outlined for events such as memorandum subscribers, allocation of all shares, and debenture allocation.
9. Penalties:
- Penalties for non-compliance are stipulated. Companies may face a minimum penalty of Rs.25,000 and a maximum of Rs.5,00,000. Officers in default may incur a minimum penalty of Rs.10,000 and a maximum of Rs.1,00,000.
By adhering to these procedures and timelines, companies ensure a transparent and legally compliant process for the transfer of shares, protecting the interests of both transferors and transferees.
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