Summary: The transfer of shares in private companies has transitioned from physical to dematerialized (demat) mode, governed by the Depositories Act, 1996, and Section 56 of the Companies Act, 2013. The process involves multiple steps to ensure compliance and transparency. First, the transferor and transferee agree on the share transfer, requiring the buyer to have a demat account with a Depository Participant (DP) registered with NSDL or CDSL. The seller then submits a Delivery Instruction Slip (DIS) containing essential details such as ISIN, company name, number of shares, and transferee’s DP ID. The DP verifies the details and processes the transfer after confirmation from the company or its Registrar and Transfer Agent (RTA). Once approved, the shares are debited from the seller’s demat account and credited to the buyer’s account. For off-market transfers, payment is typically settled through bank transfers or RTGS. Additionally, a stamp duty of 0.015% on the consideration value applies to such transactions. Transfers can be categorized as market transfers (through stock exchanges) or off-market transfers (direct transfers, gifts, or private sales). Ensuring compliance with the Depositories Act and Companies Act is crucial for a valid and legally binding share transfer.
Process of Transfer of Shares of Private Company In Demat Form | Section 56 of Companies Act, 2013 read with Depository Act, 1996
♦ Legal Framework Governing Stamp Duty:
√ Depositories Act, 1996: Governs the electronic holding and transfer of shares.
√ Companies Act, 2013 (Section 56 & Section 58): Deals with the transfer and transmission of securities.
STEP-BY-STEP PROCESS OF TRANSFER OF SHARES THROUGH DEMAT
I. Agreement Between Transferor and Transferee: The seller (transferor) and buyer (transferee) agree on the share transfer. The buyer must have an active Demat Account with a Depository Participant (DP) registered with NSDL or CDSL (wherever company has registered itself).
II. Submission of Delivery Instruction Slip (DIS) by Transferor:
The seller must fill out and submit a Delivery Instruction Slip (DIS) to their Depository Participant (DP).
The DIS must contain following informations:
- ISIN (International Securities Identification Number) of the company’s shares.
- Name of the company.
- Number of shares to be transferred.
- Buyer’s DP ID and Client ID.
- Type of transfer (market/off-market).
- Execution date.
III. Verification and Processing by DP:
√ The seller’s DP verifies the DIS details.
√ The DP shall send an intimation to RTA/ Company for verification of same.
√ If DP receive the confirmation from RTA/ Company they processes the transfer request electronically through NSDL/CDSL.
IV. Debit from Transferor’s Demat Account & Credit to Transferee’s Account:
√ Once processed, the shares are debited from the seller’s Demat Account.
√ The shares are then credited to the buyer’s Demat Account.
V. Payment Consideration:
√ The buyer makes the payment to the seller based on agreed terms (in case of an off-market transfer).
√ In case of off-market transfers, payment is usually made via bank transfer, cheque, or RTGS.
Additional Considerations
1. Off-Market vs. Market Transfers
√ Market Transfer: When shares are sold through a stock exchange.
√ Off-Market Transfer: Direct transfer between individuals/entities, such as for gift, family settlement, or private sale
Stamp Duty on Off-Market Transfers
√ 015% of the consideration value of shares is payable as stamp duty (collected via NSDL/CDSL online).
Conclusion:
The process of transferring shares through demat mode ensures efficiency, security, and transparency. Investors must comply with regulatory requirements under the Depositories Act, and the Companies Act to execute a valid share transfer.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Also Read:
Dematerialisation of securities of Private Companies
Mandatory Demat of Shares of Non-Small Private Company and PAS 6
Procedure For Transfer Of Shares
Provisions relating to Transfer of Shares of Listed & Unlisted Companies
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