Share Transfer
LegalDelight facilitates hassle-free share transfers with expert document preparation, regulatory coordination and 24/7 support, ensuring seamless transactions.
Overview
Share transfer refers to the process of transferring ownership of shares from one entity or individual to another. This transaction typically involves the transfer of legal title and rights associated with the shares, such as voting rights and dividends. Share transfers can occur for various reasons, including investment strategies, estate planning, mergers and acquisitions, or changes in ownership within a company. The process often requires adherence to regulatory requirements and the preparation of legal documents to ensure compliance and smooth transfer of ownership.
Typical Procedure of Share Transfer in a Private Limited Company
- Initiation: The shareholder intending to sell their shares (transferor) informs the company’s directors in writing about their decision.
- Review and Restriction Check (Articles of Association): The company’s Articles of Association (AoA) are reviewed to identify any restrictions on share transfer. For example, the AoA might grant existing shareholders the right of first refusal to purchase the shares before they are offered to external parties.
- Shareholder Notification (Pre-emptive Right): If the AoA allows, the company might notify existing shareholders about the proposed transfer, offering them the opportunity to purchase the shares at the agreed price.
- Share Transfer Deed Preparation: A share transfer deed is obtained in the prescribed format (Form SH-4) and must be signed by both the transferor (seller) and transferee (buyer).
- Stamping the Deed: The share transfer deed needs to be stamped with the appropriate value as mandated by the Indian Stamp Act and the relevant state’s Stamp Duty Notification.
- Witnessing the Deed: A witness signs the deed, providing their name, address, and signature to verify its execution.
- Submission to the Company: Along with the share transfer deed, the transferor must submit the original share certificate or allotment letter to the company.
- Board Resolution: The Company’s board of directors needs to approve the share transfer by passing a formal resolution.
- Transfer Register Update: Upon successful completion of the process, the company updates its internal share transfer register to reflect the new ownership.
- New Share Certificate Issuance: The company issues a new share certificate to the transferee reflecting their ownership of the transferred shares.
Documents required
- Share Transfer Deed: This document details the transfer of shares from the seller (transferor) to the buyer (transferee) and must be executed on non-judicial stamp paper of appropriate value.
- Share Certificate(s): The original share certificate(s) held by the transferor need to be surrendered along with the transfer deed for cancellation.
- Board Resolution: A resolution passed by the board of directors approving the share transfer is necessary.
- Stamp Duty Payment: Proof of payment of stamp duty on the share transfer deed, as per the relevant state’s stamp duty regulations.
- Identity Proof: Identification documents of both the transferor and transferee, such as Aadhar card, passport, or driver’s license.
- PAN Card: PAN cards of both the transferor and transferee are usually required for identification and tax purposes.
- Address Proof: Address proof of both parties, such as Aadhar card, passport, or utility bills.
- No Objection Certificate (if applicable): If the company’s Articles of Association require it, a no objection certificate from other shareholders may be necessary.
- Form SH-4: This form is required to be filed with the Registrar of Companies (ROC) within 30 days of share transfer, providing details of the transfer.
- Payment Receipts: Receipts proving payment of consideration for the shares transferred, if applicable.
FAQs
A share transfer refers to the process of transferring ownership of shares from one party (transferor) to another (transferee) in a company.
Any shareholder (individual or entity) who holds shares in a company can transfer them to another eligible entity or individual as per the company’s articles of association.
Both equity shares and preference shares can be transferred, subject to the company’s rules and regulatory compliance.
Generally, there is no restriction on the number of shares that can be transferred, unless specified in the company’s articles or shareholder agreements.
Essential documents include Form SH-4, Share Transfer Agreement, Board Resolution, Address Proof, PAN Card, Share Certificate, and any other documents required by the company or regulatory authorities.
Yes, shares can be transferred at a value mutually agreed upon by the transferor and transferee, which may be different from the face value.
A share transfer is the voluntary transfer of shares by a shareholder, whereas share transmission occurs automatically upon the death or insolvency of a shareholder.
It’s advisable to seek legal advice, especially when navigating the complexities of share transfers to ensure compliance with legal requirements. LegalDelight can provide expert guidance throughout the share transfer process, ensuring smooth navigation of legal complexities and compliance with regulatory frameworks.
Certain scenarios in which restrictions upon transfer of shares in Private Companies are not applicable:
- Transfer of shares by a member to his/her representative(s); > In the event of death of a shareholder, legal representatives of deceased shareholder apply for registering shares in the names of heirs; and
- When shares are offered to be issued on rights basis then existing members have the right the renounce these in favor of an outsider or third person. After renunciation from existing members, these shares will be allotted to renouncee for the first time and therefore no transfer of shares will take place.
(i) Section 56 read with Section 44 of Companies Act, 2013; and
(ii) Rule 11 of Companies (Share Capital and Debentures) Rules, 2014
