The ownership of a Private Limited Company in India is decided by the shareholding of the Company. For inducting new investors or transferring the ownership of the company the shares of the company need to be transferred. The company’s interest could be sold to attract new investors or to pass the control of the company.
An important characteristic of the company is that the shares can be transferred. The shares or the debentures are movable property, they are transferable as they are provided by the articles of the company, especially the shares of any members of a public company.
The share transfer is possible only through a contract or arrangement between two or more persons. The provisions of the Companies Act majorly deal with the transfer and the transmission of the securities. The transmission of the securities due to death, succession, inheritance, bankruptcy, etc. The transfer of securities is possible through any contract or arrangement between two or more persons. The provisions of the Companies Act deals with the transfer and the transmission of the securities.
Transmissions of the securities mean the loss of titles on these securities due to death, succession, inheritance, bankruptcy, etc.
What is share transfer?
Transfer of shares means handing the rights and possibly the duties of a company member voluntarily. The rights and the duties of the share transfer happen from the shareholder who is wishing to not be a member of the company anymore to a person who is willing to be a member of the company.
Thus the shares in a company are transferable like any other movable property in the absence of the expressed restrictions under the Articles of the Company.
Who is involved in Share transfer?
- Subscribers to the memorandum
- The legal representative in the case of a deceased
- Transferor
- Transferee
- Company (Whether listed or unlisted)
Procedure to transfer the shares of Private Limited Company
There are certain restrictions over the transfer of the shares of the Private lImited company the following procedure should be followed to transfer the shares:
- At first, it is necessary to obtain the share transfer deed as required in the prescribed format
- This deed needs to be duly signed by the transferor and the transferee.
- Stamp this transfer of share transfer deed with his or her name, address, and signature.
- The transfer document or the allocation letter is to be attached to the share certificate and sent to the company
- The company should process the paperwork and the transferor should be granted a new certificate in case if it is accepted.
- The transferor will request the company to transfer his shares.
- A notice will be sent by the company to all the existing members that the above-mentioned shareholder has shown the intention to transfer the shares.
- In case if no existing member has shown interest in the company then the company will intimate the transferor that he can sell his shares to a nonmember.
Then the transferor will transfer the shares by the following process:
Form SH-4: This is the most important instrument of transfer through which the process is initiated. The transferor will have to submit the SH4 that is duly executed, dated, and stamped to the company. The SH4 contains the following information:
- Execution date
- CIN of the company
- Name of the Company
- Class of the securities
- Nominal value/ Amount called up/ Amount paid up of the securities.
- The securities that are to be transferred at a consideration or Rs… Distinctive no. of shares, certificate no.
- Name of the transferor along with his Folio No, Signature. Also the same should be witnessed.
- Name of the transferee along with the details like Father’s name, address, Email id, occupation, Folio, Signature.
- The instrument of the transfer should be duly stamped as per the Indian Stamp Act. of 1899.
- Once all the details are submitted then the same company will see if everything is in place and will register the same. A share certificate is issued and endorsed, to the transferee within one month of the receipt of the Instrument of Transfer.
Transfer of share by Physical mode
The ownership of the shares can be transferred by the delivery of the possession but there is a contractual relationship between the members and the company. When the transfer of the shares happens an instrument of transfer is required. Transferring the shares is a long procedure that starts with the agreement to sell and there is an execution of the deed of transfer and finally the registration of the transfer.
Transfer Deed
The transferor transferee should execute the share transfer deed as an instrument. This share transfer deed is to be duly signed and delivered to the Company along with the certificate that is relevant to the shares that are transferred. The company will not accept any instrument of the transfer which is not in confirmation with these provisions. In the physical mode, the transfer should be executed in Form SH 4.
Acknowledgement
At times the companies send an acknowledgment of the instrument to the transferor who has lodged a transfer with the company before scrutinizing the documents. This notice comes in the form of a letter that has a checklist for the scrutiny of the transfer documents. Some companies also issue transfer receipts. In case the transfer application is made by the transferor and payment for the shares of the company are partly made then the company should not have any objection to transferring the shares within 2 weeks from the receipt of the issued notice. The company is not statutorily obliged to give the notice to the transferor when the transfer of the documents is lodged by the transferee.
Scrutiny
A scrutiny should be done on the receipts of all the transfer documents to endure that all the documents are in place. If the transfer of the documents is not acceptable then they should be returned to the transferee. Also, in case if the signature of the transferor is different in the transfer instrument and the signature in the company’s record then the documents will be returned.
Approval
The Board of Directors or the committee has to approve every transfer of the shares. The registration happens only after the approval. The right authority is required to approve it if everything is accepted after the scrutiny and the transfer of shares must be allowed by the board. In the case of the Articles of Associations of the company is empowering the board to delegate the power of approval of share transfer that it may also delegate it to another committee which is not including the directors of the company.
Registration
Any share transfers us incomplete without the registration of the share transfer. A share transfer form is a document through which the transferee is agreeing to accept the shares. This becomes a legal contract with the company. Once the company approves and also registers the transferee’s name that is entered in the registry and it qualifies him as a member of the company. Maintenance of the register of the transfer is not a statutory requirement.
Delivery of Share Certificate
The transfer is effective only on the registration of such shares by the company. The company has to deliver the share certificate within 1 month from the receipt by the company’s instrument that is relevant to the transfer. The instrument of the transfer should be endorsed with the respective name of the transferee.
Timelines
Businesses with a share capital: The company should not (within 60 days of the execution) register any transfer of shares or ownership interest to any beneficial owners with proper instruments.
Application by the transferor: The transfer should not be registered until the company has notified the transferor within 2 weeks of the notice of the receipt.
No opposition certificate: In the following events the following timelines should be followed
- For memorandum subscribers- Within 2 months from the date of incorporation.
- Allocating all the shares of the company- within 2 months from the allocation date.
- Debenture allocation within 6 months of the allocation date.
Penalties
For company – Minimum penalty of Rs.25,000 and a maximum of Rs.5,00,000.
For an officer in default – The minimum penalty levied on an officer in default is Rs.10,000 and the maximum is Rs.1,00,000.
