Transfer of Shares Under Companies Act 2013

The article discusses what Share Transfer is and the procedure of Share Transfer. It is a process of share transfer of existing shares from one person to another. The procedure to transfer shares in a private limited company varies from that of a public company. You should know that the articles of a company govern the transfer of shares in a private company. You can start with the transfer of shares form, which is Form No. SH-4 or, Securities Transfer Form. It is pursuant to Section 56 of Companies Act 2013 (1) and follows the share transfer rules. This is sub-rule (1) of rule 11 of the Companies (Share Capital and Debentures) Rules 2014.

Meaning Of Transfer And Transmission Of Shares In Companies Act 2013:

• Both Transfer and Transmission of Shares are different from each other. So, let’s understand how they’re different and exactly what is ‘transfer of shares
• Transfer of shares means transferring title of shares voluntarily, by one party to another. Whereas, the transmission of shares means, transferring title of shares by the operation of law which a legal heir initiate.
• Transfer of shares has a stamp duty that one needs to pay, based on the market value of shares, whereas in the transmission of shares procedure, there is no stamp duty that one needs to pay.

Procedure For Transfer Of Shares Of Private Ltd. Companies:

Such restriction on transfer of shares, if one adds any is to protect the interest of shareholders and other security holders. Section 56 of Companies Act 2013 provides that the transfer of shares of the company and other securities will be registered by a company only when a proper instrument for transfer of shares (share transfer form) is filed as prescribed in Form No. SH 4. You need to duly stamp the SH 4 format for transfer of share with adequate value and date. Also, one can execute it by or on behalf of the transferor and the transferee. One needs to send Form SH 4 to the company by the transferor or the transferee of the shares within 60 days from the date of execution, of the share transfer agreement. Along with the share transfer certificate or certificate relating to securities. In case there is no such share transfer certificate, then one must send the application for transfer of shares along with the letter of allotment of securities. Also, one must obtain a ‘No Objection Letter’ from the buyer within two weeks from the date of receipt of a notice.

Time Limit For The Issuing Of Shares Transfer Certificate:

One has to deliver all the share transfer certificates by the company within a period of one month from the date of receipt of the share transfer agreement or the share transfer certificate by the company. Unless the company can’t deliver due to an order of the Court or instruction by other authorities.

Stamp Duty On Transfer Of The Shares:

One has to duly stamp the share transfer form, Companies Act 2013 says so. It also adds that the stamp should have adequate value with the date. Also, it should be cancelled in accordance with Section 12 of the Indian Stamp Act (2), when you have to send the share transfer form is to be sent to the board of directors. The seller of the shares has to pay the stamp duty at the rate of Rs 0.25 for every Rs. 100 worth of shares. For stamping purpose in a transfer of shares special adhesive stamps having the word ‘share transfer’ shall be used. Section 8A of the Indian Stamp Act provides that for the electronic share transfer form, India. You can pay the stamp duty on the total amount of issuing the shares or securities.

Cancellation Of Stamp Duty:

• The Adhesive Stamps Should Be Cancelled by drawing lines across or in some other way, so that can’t be used again. However, value of stamp should be visible.
• If the share transfer deed bear stamps but it doesn’t not cancel, hence transfer can’t be recorded on basis of such transfer deed.
• Cancellation of Stamp by Company is illegal.
• If once a company transfers shares by mistake even if the instrument was not duly stamped, it can’t then apply for rectification of members.

 Importants Notes:

• Articles of private company shall restrict the right to transfer the company’s shares.
• Do not forget to cancel the stamps affixed at the time or before signing of the transfer deed.
• The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name and address.
• Share transfer can’t be declined if minor details are not given in share transfer form. Minor mistake in share transfer form should be ignored.

Transfer Of Partly Paid Up Shares:

• Duty of Company: If partly paid up shares are received for transfer: Company shall give notice to the transferee in form SH-5 and give 2 (Two) weeks’ time for objection, if any. Notice is not required if the partly paid shares are lodged by transferee.
• NOC from transferee: As per Rule 11(3) if NOC is not received from the transferee then transfer can’t be recorded. But the section doesn’t say that if the transferee doesn’t reply within 2 weeks, it may be presumed that he has no objection. “Thus, in my view, positive no objection letter from his is required.
• Liability of payment of balance amount lies with transferee.

Share Transfer Procedure Of Public Company:

Section 56 to 59 of the Companies Act, 2013(3) provides for the procedure of transfer of shares of a company. The basic transfer procedure of shares is as follows:

The board shall then register the transfer of shares if the documentation with regard to the transfer of shares is in order. The board shall register such transfer of shares only after passing a board resolution

• One has to execute the share transfer deed in the share transfer Form SH 4 both by the transferor and transferee of the shares
• To put stamps on the share transfer deed in accordance with the provisions of the Indian Stamp Act and one has to pay the stamp duty to the respective state
• Along with the signatures of the transferor and the transferee, there must be signatures of two witnesses who will also affix their name, address, and signature on the deed
• ext.
• One needs to attach the share transfer certificate or the allotment letter of the shares to the deed and send the same to the company either by the transferor or the transferee of the shares
• One needs to submit the share transfer deed to the company within 60 days from the date of execution of the deed by or on behalf of the transferor and transferee
• Once the company receives it, the board of directors shall consider the same
• The board shall then register the transfer of shares if the documentation with regard to the transfer of shares is in order. The board shall register such transfer of shares only after passing a board resolution.

Transfer Of Shares Under Depository System:

Section 56(4) of the Companies Act, 2013 provides for the transfer of share under the depository system. Under this section when a company is doing a transfer of shares or other securities through a depository, then one should inform the details of allotment of shares or securities immediately to the depository.

Step wise Procedure For Shares Transfer by Depository System:

Step 1:  The transferor of the share has to give delivery instructions to the Depository Participant No. 1 (DP1) to transfer the shares and debit his account against the clearing member 1 pool account with DP1. The clearing member-1 pool gives a parallel receipt instruction to DP1 to accept the transfer in his/her clearing account. Especially, if standing receipt instruction for all credits into his clearing account is not given. In turn, the securities are transferred from selling client A/c to clearing member pool A/c with DP1.

Step 2:  Delivery instruction is given to Clearing Corporation (CC) by the clearing member 1 to debit his Clearing Member 1 Pool A/c and credit his Clearing Member1 Delivery A/c. The transfer takes place on the execution date which is mentioned in the instruction. Delivery which is supposed to be given to CC instruction will be as per final/ net delivery obligation.

Step 3:  Till settlement day securities which are to be transferred lay in the clearing member-1 Delivery A/c. Transfer of Securities lying in clearing member-1 delivery A/c automatically transferred to the Clearing Corporation/Clearing House at the time of payment in. There is no requirement of debit instruction for this transfer. There is no set deadline time for pay-in of securities to the Clearing Corporation/Clearing House as it varies from one exchange to another.

Step 4:  Now, automatic transfer of securities from Clearing Corporation/Clearinghouse to clearing member 2 pool A/c with Depository Participant 2 (DP 2) at the time of pay out takes place and no instruction is required because of the automatic transfer.

Step 5:  Securities are transferred from clearing member2 receipt A/c to clearing member 2 pools A/c. Receipt account of clearing members is nothing more than a transit account used for maintaining the audit trail.

Step 6:  Clearing Member 2 gives a delivery instruction to DP 2 to debit his Clearing Member 2 Pool A/c and credit Buying Client A/c with DP 2. The buyer gives parallel receipt instruction to DP 2 to accept in his account securities transferred from Clearing Member 2 Pool A/c through DP 2 unless he has not given a standing instruction to receive credits to his account.

Step 7:  Lastly, the transfer of securities takes place from Clearing Member 2 Pool A/c o Buying Client A/c with DP 2. The securities will remain in clearing member pool A/c until one receives the delivery instruction.

Completion Of Transfer Of Shares:

When all the formalities related to transfer of share such as share transfer deed has been executed and handing over the share certificate is complete.