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The process to transfer the shares of a company from one person to another is known as share transfer. It can be transferred either by gifting someone or selling to others.
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Transfer of Shares

An Overview - Transfer of shares of Private Company

The firm's shareholding determines an individual's ownership in a business that is registered as a private limited company. The shareholding in the private limited company may be sold to attract new investors or to transfer ownership of the company. This article discusses the process of transferring shares in a private limited company.

Restriction on Share Transfers in AOA: A private limited company, like a partnership, is referred to as a "closed entity" of shareholders. As a result, the Articles of Association (AOA) may impose restrictions on share transfers of a Private Limited Company. The Company's Articles of Association must also be reviewed prior to initiating the action transfer process.

Any private agreement between shareholders is not enforceable against the company or the shareholders. As a result, only the Articles of Association have the authority to restrict the transfer of shares. The capacity to transfer shares in a private limited company cannot be interpreted as a complete restriction or prohibition on share transferability.

Documents required for Transfer of Shares

Documents required to be submit with company for the transfer of shares are:-

  • Both the transferee and the transferor's income tax PAN
  • Colored passport size photo of both the transferee and the transferor
  • Both the transferee and the transferor must present an Aadhaar card, an electricity bill, a passport, a driver's licence, or a voter identification card
  • The Transferor's Original Share Certificates

Step wise procedure for Transfer of Shares

Follow these steps to initiate share transfer in private limited company:-

  • 1

    INTRODUCTION:

    The transferor should notify the company in writing of his desire to transfer his share.

  • 2

    COMPANY RESPONSIBILITIES:

    • In turn, the company should tell other members of the availability of shares and the price at which they can purchase them.
    • Generally, this price is decided by the company's directors or auditors based on the book value of the shares.
    • The company should also inform members of the deadline for communicating their option to purchase shares on transfer.
    • If no member purchases shares, the shares may be transferred to an outsider, and the firm will be forced to accept the transfer.

  • 3

    EXECUTION FORM:

    Obtain a properly executed share transfer deed in form SH-4, signed by both the transferor and the transferee. SH-4 ought to be
    • Properly stamped.
    • Specifying date of transfer.
    • Specifying the transferee's and transferor's names, surnames, addresses, and occupations, if any.
    • Specifying the Transferor's and Transferee's Folio Numbers.
    • Specifying distinctive No., Share Certificate No. of transferred share.
    • Specifying the nominal value of the shares, including the consideration received.
    • Executed by the transferor or on behalf of the transferee.

  • 4

    CERTIFICATE OF ALLOCATION AND LETTER OF ALLOCATION:

    The company must retain the share certificate, or if no such certificate exists, the company must retain the letter of allotment along with the document of transfer.

  • 5

    RESOLUTION OF THE BOARD:

    Once the company receives the share transfer deed and all required documentation, the company will review the deed and documents and then vote to accept them at the company's Board Meeting. After the Board resolution is adopted, enter the transferee's name as the beneficial owner of such shares in the member's register of beneficial owners. If the transfer documentation is in order, the board shall register the transfer by approving a resolution.

  • 6

    POWER DELEGATION:

    The authority to transfer shares may be given to a single director, who may act as a "one-man committee." The Board may impose constraints on the Committee's authority, such as limiting transfers to certain amounts, such as 1,000 shares. Transfers may also be approved by circular resolution of the Board or committee.

  • 7

    ISSUE OF SHARE TRANSFER CERTIFICATE:

    Within one month of the Board Resolution's approval, the Company will issue a share certificate in the transferee's name. The Company will affix the Transferee's name to the Share Certificates.

Checklist for Transfer of Sharers

Consider these points before proceeding for share transfer:-

  • Analyse the Articles of Association of the company and address the restrictions in AoA for the share transfer, if any.
  • It is compulsory for the shareholders to give notice to the directors in writing, about their intention of transferring shares.
  • The company needs to notify other shareholders about the shares availability, its price and the deadline to purchase the shares.
  • Shares must be allotted to those present shareholders, who are keen to purchase the shares. If the present shareholders are not showing any interest in buying, then the company can transfer those shares to outsiders.

FAQs on Transfer of Shares

The process to transfer the shares of a company from one person to another is known as share transfer. It can be transferred either by gifting someone or selling to others.
Yes, you can transfer the shares of a company by giving notice to the company and by following procedure mentioned above.
A partially paid share is one in a firm that has been paid in part in comparison to the full issue price.
The transfer of shares is a voluntary act undertaken by the shareholder and is effected through a contract. Whereas the transfer of shares occurs as a result of the operation of law, that is, upon the death of the shareholder or in the case of the shareholder being insolvent/lunatic.
This is the only evidence of ownership of shares issued by the company. This certificate contains name of the shareholder, number of share held by him and nominal value of the shares.
Instruments of transfer of securities held in physical form shall be in Form SH. 4 and shall be provided to the company within sixty (60) days of the date of execution.

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