Procedure to Transfer Shares in Private Limited Company
Transferring shares in a private limited company involves a process that must be followed to ensure that the transfer is done in a legal and proper manner. This process involves various steps that need to be taken by both the transferor and the transferee. In this blog, we will discuss the procedure to transfer shares in a private limited company with proper headings.
Step 1: Check the Articles of Association (AoA) The first step in transferring shares is to check the AoA of the private limited company. The AoA will have provisions regarding the transfer of shares, which must be followed. The articles may have restrictions on the transfer of shares, such as the right of first refusal, lock-in period, etc. The transferor and transferee must ensure that they are aware of these restrictions.
Step 2: Obtain Share Transfer Deed The next step is to obtain a share transfer deed in the prescribed format. This deed should contain the details of the transferor, transferee, number of shares being transferred, consideration paid for the shares, etc. The share transfer deed should be signed by both the transferor and transferee and should be stamped and executed as per the Stamp Act.
Step 3: Pay Stamp Duty The share transfer deed must be stamped as per the Stamp Act. The stamp duty is calculated based on the consideration paid for the shares or the fair market value of the shares, whichever is higher. The stamp duty should be paid before the share transfer deed is submitted to the company.
Step 4: Submit Share Transfer Deed to the Company Once the share transfer deed is stamped and executed, it should be submitted to the company along with the share certificate(s) of the shares being transferred. The company will verify the share transfer deed and issue new share certificates in the name of the transferee.
Step 5: Update Shareholder Register The company should update its shareholder register to reflect the transfer of shares. The transferor should no longer be listed as a shareholder, and the transferee should be listed as the new shareholder. The company should also update its records with the details of the new shareholder, such as their name, address, PAN number, etc.
Step 6: Payment of Transfer Fees The company may charge a transfer fee for processing the transfer of shares. This fee varies from company to company and should be paid by the transferor or transferee, as per the company’s policy.
Step 7: Intimation to the Company Before submitting the share transfer deed and share certificates to the company, the transferor should inform the company of their intention to transfer the shares. The company may require additional documentation or information from the transferor or transferee before processing the transfer.
Step 8: Approval from the Board of Directors If the company has any restrictions on the transfer of shares, such as the right of first refusal or lock-in period, the transferor may need to obtain approval from the board of directors. The board may consider the transfer and decide whether to approve or reject it based on the provisions of the AoA and other relevant laws.
Step 9: Register the Transfer with the Registrar of Companies (RoC) Once the share transfer is completed, the company should file Form SH-4 with the RoC within 60 days of the transfer. This form contains details of the transfer, including the names of the transferor and transferee, the number of shares transferred, the consideration paid, etc.
Step 10: Update Other Relevant Documents After the transfer of shares, the transferor and transferee should update other relevant documents, such as the share ledger, share certificate register, minutes of board meetings, etc., to reflect the transfer of shares.
Conclusion
Transferring shares in a private limited company requires careful consideration of the provisions of the AoA and other relevant laws. By following the procedure outlined in this blog, the transferor and transferee can ensure that the transfer is completed smoothly and legally. It is essential to keep all documentation and records up-to-date to avoid any legal complications in the future.
Read more useful content:
Frequently Asked Questions (FAQs)
Can shares be transferred in a private limited company without the consent of the board of directors?
No, the transfer of shares in a private limited company requires the approval of the board of directors. The board may approve or reject the transfer based on the provisions of the AoA and other relevant laws.
What is a share transfer deed?
A share transfer deed is a legal document that contains details of the transferor, transferee, number of shares being transferred, consideration paid for the shares, etc. It should be executed and stamped as per the Stamp Act.
What is the stamp duty payable on share transfer?
The stamp duty payable on share transfer is calculated based on the consideration paid for the shares or the fair market value of the shares, whichever is higher. The rate of stamp duty varies from state to state.
Can shares be transferred during the lock-in period?
It depends on the provisions of the AoA. If the AoA has a lock-in period, the transfer of shares during this period may require the approval of the board of directors.
What is the right of first refusal?
The right of first refusal is a provision in the AoA that gives existing shareholders the right to purchase the shares being transferred before they are offered to external parties. This right is usually exercised within a specified time frame.
Can shares be transferred to a non-resident?
Yes, shares can be transferred to a non-resident. However, the transferor and transferee must comply with the foreign exchange regulations and obtain the necessary approvals.
What is the procedure for transferring shares held in demat form?
The procedure for transferring shares held in demat form is similar to transferring physical shares. The transferor should initiate a transfer request with their depository participant (DP) and provide the necessary details.
Can the transferor cancel the share transfer after submitting the share transfer deed to the company?
No, once the share transfer deed is submitted to the company, the transferor cannot cancel the share transfer. The transfer is completed after the company issues new share certificates in the name of the transferee.
Is it mandatory to pay transfer fees to the company for transferring shares?
The payment of transfer fees to the company for transferring shares is not mandatory. It depends on the company’s policy.
Can the transferee sell the shares immediately after the transfer?
Yes, the transferee can sell the shares immediately after the transfer. However, if the shares are subject to a lock-in period or right of first refusal, the transferee may need to comply with these provisions before selling the shares.
