Seamless Share Transfer
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Share Transfer
One of the key benefits of owning company shares is that they can be transferred to others, making it easier for investors to enter or exit the business. Debentures and shares are movable assets. In particular, the shares of any member of a public corporation are transferable in the way specified by the company’s articles.
Securities can be transferred when two or more parties enter into an agreement or contract that involves shifting ownership from one to another. The Companies Act lays down clear rules for how securities can be passed on or transferred, whether due to a sale, inheritance, or any other change in ownership. Loss of title to securities owing to death, succession, inheritance, bankruptcy, etc. is known as transmission of securities. To put it briefly, it is not a transfer.
Transferring shares means a member of the company is willingly handing over their ownership—and possibly some related responsibilities—to someone else. When a shareholder wants to stop being a member of the firm, they transfer their rights and obligations to someone who wants to join.
As a result, unless the company’s articles specifically state otherwise, shares are transferable like any other movable property.
Share Transfer Rules
The Articles of Association (AOA), which regulate share transfers in private limited companies, must be reviewed before beginning any transfer. The following are the limitations placed on shareholders’ ability to transfer their company shares:
i. Pre-emptive Rights: If a shareholder wants to sell their shares, they must first offer them to the firm’s current members at a price determined by the auditor or directors of the company. The Articles of Association should specify the share valuation procedure. The shares may be transferred to an individual outside the company if existing shareholders show no interest.
ii. Directorial Discretion on Share Transfers: A director may be able to refuse a share transfer to a third party under the Articles of Association. In a Private Limited Company, this gives directors considerable control over decisions regarding share transfers.
Common challenges in share transfer
i. Lost Share Certificates: The transfer procedure may become more difficult if shareholders misplace their actual share certificates. Companies frequently have policies in place to provide duplicate certificates after receiving adequate evidence of loss.
ii. Transfer Restrictions: Certain companies place limitations on the transfer of shares, such as requirements for director permission or pre-emption rights. For the transfer procedure to go smoothly, it is essential to comprehend these limitations.
iii. Disputes over valuation: Particularly in private businesses, valuing shares for transfer purposes can give rise to disagreements. Such disagreements can be settled by enlisting the aid of an impartial valuer or mediator.
Key persons involve in Share Transfer process
Several important parties are involved in the process, including
- First signatories to the business’s memorandum of association.
- If a shareholder unfortunately passes away, the person legally authorized to manage their affairs steps in to handle the shares on their behalf
- The current shareholder who wants to transfer shares is known as the transferor.
- The transferee to whom shares are given.
- The company is also involved in the transfer whether it is a public company or private company.
Documents required
The following paperwork is required for the process of transferring shares in a private company to be completed successfully:
- The Share Transfer Deed (Form SH-4) is the key paperwork that officially records the share transfer—it needs to be signed by both the buyer and the seller to make the deal valid.
- Share Certificate: When completing the share transfer document, the seller is required to present the original share certificate.
- To complete the share transfer, the buyer needs to provide a copy of their PAN card as proof of identity and for record-keeping purposes.
- Board Resolution: A formal resolution approving the share transfer must be passed by the company’s board of directors.
- No Objection Certificate: To verify the seller’s approval of the share transfer, a NOC may be asked for.
- Indemnity Bond: In order to protect the business from possible losses associated with transfers, the seller may be required to furnish an indemnity bond.
- Stamp Duty Payment: Depending on the state, stamp duty must be paid on the share transfer deed.
Process for transfer of shares
- The first step is to obtain the transfer deed in the required format, Form SH-4, with the approval of the designated authority.
- In the given circumstances, the transfer instrument may not be in the required format (Form SH-4):
- when shares of a company owned or managed by the central government or a state government are transferred by a director or nominee;
- If a director or nominee is handling the transfer of shares on behalf of a company—as allowed under Section 187 of the Companies Act, 2013—here’s what that typically involves.
- Deposited shares that serve as collateral for loan or advance repayment if they are made with any of the following: any scheduled bank, the State Bank of India, or other financial institutions, banks, the central government, state governments, companies owned by the central or state governments, and trustees who submitted the statements. A uniform format can be utilized as the transfer instrument for debentures.
- As per the Companies Act, 2013, make sure to collect the company’s Articles of Association for share-related matters, the trust deed if debentures are involved, and the officially recorded transfer deed to ensure everything is in order transferor and the transferee or on their behalf.
- The transfer deed should require stamps in accordance with the Indian Stamp Act and the state-specific stamp duty announcement. For share transfers, the current stamp duty rate is 25 paise per 100 rupees of share or portion of share value. This implies that the stamp tax on shares worth Rs. 1,050 will be Rs. 2.75.
- Verify that the stamp on the transfer deed is removed either before or at the time of the deed’s signature.
- Both the seller and the buyer of the shares or debentures need to personally sign the transfer deed, along with the details and signature of a witness who confirms and approves the transfer.
- Along with the transfer deed, the company must receive the proper share/debenture certificate or allotment letter.
- If the transferor’s application is for partially paid shares, the company must properly inform the transferee of the amount owed on shares or debentures and obtain a NOC within 2 weeks of receiving the notice from the transferee.
- In the event that the signed transfer deed is lost, put the same value stamp on a written application, and the board may register the transfer on any indemnity terms it deems appropriate.
- A company is not allowed to impose a fee for the registration of share and debenture transfers if its shares are listed on a recognized stock exchange.
- Until two (2) weeks after receiving the notice from the company, the transferee must provide a certificate stating that he has no objections to the transfer.
Time Limit for Share Transfer
A Company Having Share Capital:
A company with share capital is not allowed to register transfers of its securities or members’ interests in it, unless they are beneficial owners, without a valid transfer document within 60 days after the date of execution.
Application Made Solely by the Transferor:
The transfer will not be registered until the company notifies the transferor of the application and the transferee provides a certificate of no objection within two weeks of receiving the notice.
Issuance of Certificates for Securities:
In the following situations and within the specified time frames, the company must provide certificates of all securities issued, transferred, or transmitted:
- In the case of memorandum subscribers, within two months of the date of incorporation.
- If any of its shares are allocated, it must be done within two months after the date of allocation.
- The company must receive the transfer document or notification of transmission within a month of the date of receipt.
- Debentures should be officially allotted and finalized within six months from the date they were initially issued.
FAQ
1. What is share transfer in a company?
The process of transferring ownership of a company’s shares from one individual (the transferor) to another (the transferee) is known as a share transfer. Both public and private limited companies frequently use this procedure.
2. What documents are required for share transfer?
The following paperwork is normally needed in order to transfer shares:
1. Share Transfer Form (SH-4): This is a share transfer form.
2. Share Certificate: The original certificate of shares held by the transferor.
3. Board Resolution: If necessary, a resolution authorizing the transfer that has been approved by the board of directors.
4. Stamp Duty: The transfer must be stamped in accordance with the relevant stamp duty rates.
3. How is stamp duty calculated on share transfer?
In India, share transfers are subject to stamp duty, which varies by state. Usually, the face value or the market value of the shares being transferred—whichever is higher—is used to compute the stamp duty. Depending on the state’s regulations, the stamp duty on physical shares is determined as a proportion of either the face value or the market value The transfer of shares in the depository system is subject to stamp duty for dematerialized shares.
4. How does the transfer process work in a private company?
In the case of a private limited company:
1. The Share Transfer Form (SH-4) is turned in by the shareholder (transferor).
2. The form is signed by the transferor and the transferee, and the transferor also turns in the share certificate.
3. To authorize the share transfer, the board of directors convenes and adopts a resolution.
4. The business gives the transferee a new share certificate and changes the shareholder registry. After the replacement certificate is issued, the share transfer is finished
5. Can the board of directors reject a share transfer request?
A private limited company’s board of directors has the authority to refuse a share transfer if the Articles of Association (AoA) forbid it or if doing so will violate any other clauses, like limitations on who can get the shares.
6. What happens if there is a dispute regarding share transfer?
If there is a problem, for example, amongst shareholders or with the company, it can be settled through arbitration, mediation, or, if required, court action.
7. How long does it take to transfer shares in a private company?
Depending on how quickly the paperwork is turned in and whether the board of directors or other shareholders have any objections, the share transfer procedure could take a few days to a few weeks.
8. What is the role of the company's Articles of Association in share transfer?
In the process of transferring shares, the company’s Articles of Association (AoA) are very important. The AoA may place limitations on share transfers, including:
1. Rights of pre-emption for current shareholders.
2. Requirements regarding the kind of transferees (such as current stockholders or family members)
3. There are restrictions on how many shares can be transferred to a single shareholder.
9. What is the process for transferring shares in a public company?
Since shares are traded on the stock exchange, the procedure for transferring shares in a public company usually takes a distinct path. Shares may be sold or transferred by a shareholder using the depository system or an exchange.
i) Selling shares on the stock exchange (for listed companies) is one step in the process.
ii) If the shares are in demat form, completing the transfer via the depository participant.
10. Can shares be transferred without the consent of the company?
In a private business, the Articles of Association may impose limits and share transfers may need the company’s approval. In a publicly traded corporation, a transfer does not require the company’s approval as long as the shares are freely traded (for listed shares).
11. Are there any restrictions on the transfer of shares in a listed company?
Share transfers for publicly traded companies can take place via the stock exchange and are often free. However, if a shareholder has material non-public information, they may be subject to restrictions under certain securities laws and insider trading regulations.
Share Transfer is a critical process for restructuring ownership and bringing in new stakeholders.
Whether you’re onboarding new investors or exiting shareholders, compliant share transfers help you:
✅ Legally transfer ownership as per the Companies Act
✅ Maintain proper records and shareholding structure
✅ Avoid legal disputes, penalties, and regulatory issues
✅ Ensure transparency between directors and shareholders
✅ Build confidence among investors and stakeholders
Click here to discover how we make Share Transfer smooth, compliant, and fully documented.
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