Share Transfer

Procedure to transfer the shares of Private Limited Company

The transfer of shares in a Private Limited company is subject to certain restrictions, and the following procedure should be followed:

• 1. Obtain the share transfer deed in the prescribed format.
• 2. Ensure that both the transferor and the transferee sign the deed.
• 3. Stamp the share transfer deed with the name, address, and signature of the person transferring the shares.
• 4. Attach the transfer document or the allocation letter to the share certificate and forward it to the company.
• 5. The company will process the paperwork and issue a new certificate if the transfer is approved.
• 6. The transferor will formally request the company to transfer their shares.
• 7. The company will send a notice to all existing members, informing them of the transferor's intention to transfer shares.
• 8. If no existing member expresses interest in acquiring the shares, the company will inform the transferor that they can sell the shares to a non-member.

The transferor will complete the share transfer using the following process:

Form SH-4

Fill out Form SH-4, which is the essential document initiating the transfer process. This form must be executed, dated, and stamped.

The SH-4 form should include the following information:

• Execution date
• Company's CIN
• Company's name
• Class of securities
• Nominal value/amount called up/amount paid up of the securities
• Securities to be transferred (consideration or Rs...)
• Distinctive number of shares
• Certificate number
• Provide the transferor's name, folio number, signature, and witness.
• Include the transferee's name, father's name, address, email id, occupation, folio, signature.
• Ensure that the transfer document is properly stamped in accordance with the Indian Stamp Act of 1899.
• Once all the required details are submitted, the company will verify the documents and register the transfer. The company will issue a share certificate, which will be endorsed and given to the transferee within one month of receiving the Instrument of Transfer.

Share Transfer Process by Physical Mode

The transfer of ownership of shares can be accomplished through the physical mode, which involves a contractual relationship between the members and the company. The process of transferring shares involves several steps, starting with the agreement to sell, followed by the execution of a transfer deed, and finally, the registration of the transfer.

Transfer Deed

To transfer shares, the transferor and the transferee must execute a share transfer deed. This document must be properly signed and delivered to the company, along with the relevant share certificate. The company will only accept transfer instruments that comply with these provisions. In the physical mode, the transfer should be executed using Form SH 4.

Acknowledgement

Upon receiving a transfer, some companies may send an acknowledgment to the transferor before reviewing the documents. This notification typically comes in the form of a letter containing a checklist for verifying the transfer documents. In some cases, transfer receipts may also be issued. If the transfer application is made by the transferor and partial payment for the shares has been made, the company should not object to the transfer within two weeks. However, the company is not obligated to notify the transferor when the documents are submitted by the transferee.

Scrutiny

The transfer documents should undergo a careful review to ensure that all the required documents are in order. If any discrepancies or missing documents are found, they must be returned to the transferee. Additionally, if the signature of the transferor on the transfer instrument differs from the signature in the company's records, the documents will be returned.

Approval

Every transfer of shares must be approved by the Board of Directors or a committee designated for this purpose. Registration only takes place after obtaining approval. The relevant authority must approve the transfer if all the documents pass scrutiny and the transfer of shares is deemed acceptable. If the Articles of Association empower the board to delegate the power of approval, it may be assigned to another committee that does not include company directors.

Registration

Registration of the share transfer is a crucial step in the process. A share transfer form is used to document the transferee's agreement to accept the shares, constituting a legally binding contract with the company. Once approved and registered by the company, the transferee's name is entered into the registry, officially making them a member of the company. Although not a statutory requirement, maintaining a register of transfers is recommended.

Delivery of Share Certificate

The transfer of shares becomes effective only upon registration by the company. The company is obligated to deliver the share certificate within one month of receiving the relevant transfer instrument. The instrument must be endorsed with the transferee's name.

Timelines

For companies with share capital: The company must not register any transfer of shares or ownership interest to beneficial owners without proper instruments within 60 days of execution.

Application by the transferor: The transfer should not be registered until the company has notified the transferor within two weeks of receiving the notice.

No opposition certificate: In the following scenarios, the timelines are as follows:

• For memorandum subscribers: Within two months from the date of incorporation.
• For allocating all shares of the company: Within two months from the allocation date.
• For debenture allocation: Within six months of the allocation date.

Penalties

For the company: The minimum penalty is Rs. 25,000, and the maximum is Rs. 500,000.

For an officer in default: The minimum penalty for an officer in default is Rs. 10,000, and the maximum is Rs. 100,000.