Procedure For Transfer of Shares Held In Physical Form In A Private Company

· Secretarial Standard 1,

· The Companies (Share Capital and Debentures) Rules, 2014,

· Companies (Management and Administration) Rules, 2014.

• Check the restrictions in the Articles of Association of Company with respect to transfer of its shares.

• While the the Companies Act 2013 (act) doesn’t legally require share valuation before a transfer, it is strongly recommended to prevent tax issues and buyer-seller disputes.
• If a non-resident is buying or selling shares, a formal valuation is required to comply with FEMA, Non-debt Instruments Rules 2019 and RBI guidelines.
• If Transferor / Transferee belongs to any of the country which shares land border with India, then the Government’s approval under FEMA (Non debt Instruments) Rules 2019, prior to transfer of shares is required and same is required to be enclosed to Form SH 4.

• A Share Transfer Agreement is is not legally mandatory under the act, but it is highly recommended to clarify terms, keep records, and prevent disputes.
• Share Transfer Agreement helps buyers and sellers clearly define important details like share quantity, price, payment schedules, and transfer dates.

• An instrument of transfer of securities held in physical form shall be in Form SH-4 and every instrument of transfer with the date of its execution specified thereon shall be delivered to the company within sixty days (60 days) from the date of such execution.
• Before submitting Form SH-4, both the buyer and seller must sign it and pay stamp duty as per the provisions of Indian Stamp Act, 1899 on the transfer value. (Which at present is 0.015% of the consideration)
• This stamp duty must be paid using franking or specific “Share transfer” stamps, which are different from standard revenue stamps.
• Before execution of SH 4, it is necessary to check in case there is a requirement of split of share certificates in order to give effect to the transfer of shares.

• As per the provisions of Section 56 of the act, a company cannot register a transfer of securities unless a proper instrument of transfer in form SH-4 is duly executed by (or on behalf of) transferor and transferee.

And the same been delivered to the company within 60 days from the date of execution, along with the certificate relating to securities. And if no such certificate is in existence along with the letter of allotment of securities.

• Once the company receives Form SH-4, director or officer of the company must verify that the details provided are true, stamp duty is paid, and the transfer complies with the act.

Additionally, if form is executed by someone else on behalf of the buyer or seller, the officer must also verify the authorizing documents, such as a Power of Attorney or Board Resolution.

• The Board is required to pass resolutions approving the transfer of shares. The Board may as well pass the resolutions with respect to split of shares, authorising the director / officer of the company to register the transfer of shares and update necessary registers and records of the Company.
• Company shall not register a transfer of partly paid shares, unless the company has given a notice in Form SH-5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of receipt of notice.

· As per Section 88 and Rule 5 of Companies (Management and Administration) Rules, 2014 the company is required to make the entries in the register of members (in form MGT 1) within seven days after the Board of directors or duly constituted committee approves transfer of shares. And also make necessary entries relating to transfer of shares are required to be made in register of transfer of shares.

• The company is required to make necessary endorsements/cancel old certificate (if necessary), and issue new share certificates in the name of the transferee Within 1 month from the date of receipt of instrument of transfer i.e. SH-4.

• Company is required to report transfer of securities in the Company in its Annual return in Form MGT-7/MGT-7A with ROC.
• If a company rejects a share transfer, it must send a notice with the reasons for refusal to the transferor and the transferee within 30 days of receiving the transfer form.