Company Share Transfer Procedure for Private Limited Company

Ashish M. Shaji

24 Nov, 2020

The word ‘transfer’ is an act of the parties by which title to a property is transferred from one person (transferor) to another person (transferee).

What is meant by Company Share Transfer?

Shareholders are the owners of the Company and transfer of shares is a transaction resulting in a change of ownership. Rights of a shareholder to transfer his share are always subject to provisions in Articles of Association (AOA) of the company. Once the Company is incorporated, it acquires its own independent legal personality and distinct entity, and its shareholders acquire the right to hold and transfer shares.

What is Company Share Transfer Procedure?

The procedure is as under:

• Review the Article of Association (AOA) of the Private Limited Company, observe and address the restrictions in the AOA, if any.
• The shareholder must give notice in writing to the Director of the Company about his intention to transfer a share of the Company.
• The Company shall intimate to the other members about the intention to transfer the shares.
• The Company will then determine the price of the shares to be transferred, which is usually determined by the Director or Auditor of the Company.
• An instrument of securities held in physical form shall be filled in share transfer deed in Form SH-4.
• Execute the share transfer deed duly signed by the Transferor and Transferee. In the event of a death of transferor or the transferee, their legal representatives may duly sign the deed.
• Stamp the share transfer deed as per the Indian Stamp Act and Stamp Duty Notification in force in the concerned state where the deed is being executed.
• The signing of transfer deed by the transferor and transferee is to be witnessed by a person, who is supposed to give his signature, name and full permanent address on the said deed.
• Attach the share certificate or allotment letter with the share transfer deed, and every instrument of transfer deed must be delivered to the company within 60 days from the date of execution of share deed by or on behalf of the transferor and by or on behalf of the transferee.
• If all the documents are found to be in prescribed order, the board of director shall register the transfer by passing a resolution, and this step embarks completion of the transfer of shares in a private limited company.
• The Company is required to deliver the certificates of all shares transferred within one month of application for the registration of transfer of any such shares.

Can a Company refuse to register Transfer of shares?

Private Limited Company has a power of refusal to register transfer of shares which is to be exercised by the Company within 30 days from the date on which the instrument of transfer or the intimation of transfer, as the case may be is delivered to the Company by sending a notice of the refusal along with reasons for such refusal to the transferor and the transferee.

What happens if a company refuses to register Transfer of shares?

If a company refuses or fails to register or transfer the shares then the transferee can appeal to the National Company Law Tribunal (NCLT^[1]) against the refusal within a period of 30 days from the date of receipt of the notice from the Company or in case no notice has been sent by the Company, within a period of 60 days from the date on which the instrument of transfer was delivered to the Company.

Company Share Transfer: Penalty for Non-Compliance

There is a heavy penalty in case of default is made in complying with the provisions related to transfer of shares, the Company shall be punishable by a fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable by a fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.

Conclusion

Shares in a company can be transferred like any other moveable property in the absence of any expressed restrictions. In case you need more information on Company Share transfer or relevant laws, contact Enterslice.

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