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Share Transfer

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Share Transfer

The transferability of a company's shares is a important feature. 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.

Any agreement or contract between two or more people might result in the transfer of securities. The Companies Act's provisions address the transmission and transfer of securities. 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.

A transfer of shares is the voluntary relinquishing of a company member's rights and perhaps responsibilities (as represented in a share of the firm). 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
i) First signatories to the business's memorandum of association.
ii) A  legal representative , in case a shareholder passes away.
iii) The current shareholder who wants to transfer shares is known as the transferor.
iv) The transferal to whom shares are given.
v) The company is also involve in the transfer whether it is 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:
i) Share Transfer Deed (SH 4) : This important document makes the transfer possible and requires the signatures of the buyer and seller of the shares.
ii) Share Certificate: When completing the share transfer document, the seller is required to present the original share certificate.
iii) PAN Card: The share transfer procedure requires a photocopy of the buyer's PAN Card.
iv) Board Resolution: A formal resolution approving the share transfer must be passed by the company's board of directors.
v) No Objection Certificate: To verify the seller's approval of the share transfer, a NOC may be asked for.
vi) Indemnity Bond: In order to protect the business from possible losses associated with transfers, the seller may be required to furnish an indemnity bond.
vii) Stamp Duty Payment: Depending on the state, stamp duty must be paid on the share transfer deed.

Process for transfer of shares

i) The first step is to obtain the transfer deed in the required format, Form SH-4, with the approval of the designated authority.
ii) 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;
-When a director or nominee transfers shares on behalf of another company under section 187 of the Companies Act, 2013;
iii) 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.
iv) Obtain, in compliance with the terms of the Companies Act of 2013, the Articles of Association for shares, the trust deed for debentures, and the transfer deed recorded by the transferor and the transferee or on their behalf.
v) 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.
vi) Verify that the stamp on the transfer deed is removed either before or at the time of the deed's signature.
vii) The transferor and the transferee must sign the share/debentures transfer deed in person for the person who provides his name, address, and signature to approve the transfer.
viii) Along with the transfer deed, the company must receive the proper share/debenture certificate or allotment letter.
ix) 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 week of receiving the notice from the transferee.
x) 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.
xi) 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.
xii) 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.

In the following situations and within the specified time frames, the company must provide certificates of all securities issued, transferred, or transmitted:

i) In the case of memorandum subscribers, within two months of the date of incorporation.
ii) If any of its shares are allocated, it must be done within two months after the date of allocation.
iii) The company must receive the transfer document or notification of transmission within a month of the date of receipt.
iv) Debenture allocation: no later than six months after the date of allocation.

  • 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.

The following paperwork is normally needed in order to transfer shares:
Share Transfer Form (SH-4): This is a share transfer form.
Share Certificate: The original certificate of shares held by the transferor.
Board Resolution: If necessary, a resolution authorizing the transfer that has been approved by the board of directors.
Stamp Duty: The transfer must be stamped in accordance with the relevant stamp duty rates.

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.

In the case of a private limited company: 
The Share Transfer Form (SH-4) is turned in by the shareholder (transferor).
The form is signed by the transferor and the transferee, and the transferor also turns in the share certificate.
To authorize the share transfer, the board of directors convenes and adopts a resolution.
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.

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.

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.

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.

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:
Rights of pre-emption for current shareholders.
Requirements regarding the kind of transferees (such as current stockholders or family members)
There are restrictions on how many shares can be transferred to a single shareholder.

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.

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).

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.