Share Transfer Under Companies Act, 2013 and Rules

Article focus on the detailed process of Transfer of Shares under the Companies Act, 2013. According to the Companies Act, 2013, shares of a Public Limited Company are freely transferable whereas a Private Limited Company is required to restrict the right to transfer its shares by its Articles of Association through Section 2 (68) of the Companies Act, 2013. Transfer of shares is as equivalent as transfer of ownership, hence it is important to regulate it through provisions, therefore the provisions and regulations for transfer have been enacted in Section 56 to 59 of Companies Act, 2013 and the Companies (Share Capital & Debentures) Rules 2014.

PROCEDURE FOR TRANSFER OF SHARES FOR PRIVATE LIMITED COMPANY

• NOTICE BY TRANSFEROR: There is restriction for transfer of shares by Private Limited Company under Companies Act, 2013, So, members who want to transfer his shares shall place a request or give a written notice of his/her intension to transfer the shares of the Company.
• BOARD MEETING: After receiving the notice by transferor, Company will conduct the Board Meeting and pass the Board resolution.
• LETTER OF OFFER: Thereafter, Company will send Letter of offer to all existing members for purchase of shares, along with the timeline and price at which such shares would be available for them. Letter of offer only to existing members because they have first option to buy them before it can be offered to any other person i.e. Pre-emption right.
• DISSENT OR ASSENT LETTER FROM EXISTING SHAREHOLDERS: Existing shareholders can accept or reject those shares. If the existing members did not reply in the given timeline, it is deemed to be taken as unacceptance of offer and shares are then offered to the outsider or else If no other existing member is ready to purchase share then company shall send the letter to the shareholder who want to sell his shares stating that now he/she can transfer the shares to non –existing member.
• SHARE TRANSFER DEED (SH-4) & SHARE CERTIFICATE: On final acceptance of offer for purchase of shares by the transferee, the transferor or the transferee have to submit the share transfer deed in Form SH- 4 along with Share Certificate, it should duly have filled, stamped and signed by both transferor and transferee. Stamping should have done in accordance with Indian Stamp Act and after stamping it should have cancelled in order to avoid misuse of the same.
• BOARD MEETING: After receiving of Form SH-4 along with Share Certificate by the Company, the Board shall consider and verify the documents and if the share transfer documentation is in order, the board should register the transfer of shares by passing Board Resolution.

PENALTIES

For the Company and every officer of the Company who is in default shall be liable to a penalty of Rs. 50,000.

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Disclaimer: The information given in this document has been made on the basis of the provisions stated in the Companies Act, 2013. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not a legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.