Before understanding Transfer of Shares of Private Limited Company, we need to understand what is a share???
Shares are units of ownership interest in a corporation. These are Moveable property which can be transferred from one person to another.
Transfer of shares
1. Transfer of shares means transferring the Title of shares voluntarily by one party to another party. Generally shares of a company are freely transferable though there may be certain restrictions on Transfer of shares of the private company as provided in the articles.
2. Transfer of shares is governed as per provisions of Section 56 of the Companies Act 2013.
3. A Company shall not register any Transfer unless a proper instrument of Transfer held in physical form in Form No. SH-4 duly stamped, dated and executed by or on behalf of Transferor and the Transferee. Please Note Stamp duty to be paid on Transfer of shares is mentioned in The Indian Stamp Act, 1899. Please Note that Stamp Duty payment on Transfer of shares have been amended by powers conferred by Section 11 of the Finance Act, 2019 (7 of 2019) and Central Government has appointed 09th January 2020 as the date on which the provisions of Part 1 of Chapter IV of the said Act shall come into force.
4. Every Company shall unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities transferred within a period of one month from the date of receipt by the company of the instrument of Transfer.
5. The Transfer or Interest of deceased person in a company made by his legal representative is not a holder thereof ,be valid as if he had been the holder at the time of execution of the instrument of Transfer.
A. As per Chapter 4 (Companies (Share capital and Debenture) Rules, 2014, Rule 11 the Said Instrument of Transfer should be delivered within sixty days from Date of Execution of Transfer.
As per Provisions of Section 56 of Companies Act,2013, if the same is not delivered within prescribed period, the company may register the transfer on such Terms as to indemnity as the Board may think Fit.
B. As per Chapter 4 (Companies(Share capital and Debenture) Rules, 2014, Rule 11 A company shall not register a transfer of partly paid up 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.
Procedure of transfer of shares for a private company
As mentioned above that there is a restriction regarding transfer of shares of Private Company so the following procedure should be followed to Transfer the shares:
1. Transferor will request the Company to Transfer his shares
2. The Company will sent Notice to all existing members that the above mentioned shareholder has shown his intention to transfer his shares
3. If no existing Member has shown interest then Company will intimate the Transferor that he can sell his shares to non member.
4. Then the Transferor will Transfer the shares by the following Process:
5. FORM SH-4: This is the most important instrument of Transfer through which process is initiated. The Transferor will submit SH-4 duly executed,dated and stamped to the Company. SH-4 contains the following information:
NOTE: As a practice for good corporate governance and to protect the interest of parties, it is feasible for parties to execute the following Additional documents for their Record for Transfer of shares:
1. Board Resolution or Take Note Transfer of shares
Pass Board resolution for approving and executing the Transfer of shares and recording the same in register of Transfer or other way is you can also take note the same in the meeting held after transfer of shares.
2. Share Transfer Agreement
This is an Agreement that is being entered between the Transferor and Transferee of shares confirming the Transfer .Details of Shares Transferred, Mode of payment etc are mentioned in the same. Stamp Paper should be attached. Amount of Stamp paper will be as per Indian Stamp Act, 1899.
3. Sale Bill
This includes the price at which the transfer has taken place. Both the parties sign the same.
Receipt is a proof which is signed by the Transferor that the Transferee has made complete payment of consideration.
DISCLAIMER: The Entire Contents of this document have been prepared on the basis of relevant provisions and information available at that time and prepared with due accuracy and reliability. But In No event I will be liable for any damages caused in connection with use of this information.