Share Transfer

In India, the Company's shareholding determines who owns a Private Limited Company. Shares of the company must be transferred in order to welcome new investors or change the ownership of the business. To entice new investors or transfer ownership of the company, the interest in the company may be sold.

One of the most important aspects of the business is its ability to transfer shares. As stated in the articles of incorporation, the shares and debentures are movable property and are transferable, particularly the shares of any shareholders in a public company.

Shares can only be transferred by a formal contract or agreement between two or more persons. The provisions of the Companies Act mainly deal with the transfer and transmission of securities. the sale of securities due to insolvency, succession, or inheritance. Securities may be transferred as a consequence of any agreement or contract between two or more parties. The provisions of the Companies Act apply to the transfer and transmission of securities.

If a security is "transmitted," it has lost ownership due to another event, such as bankruptcy, succession, or inheritance.

What is share transfer?

When shares are transferred, a company member's rights and possibly even duties are voluntarily ceded. The shareholder who chooses to resign from the corporation passes all of his or her rights and responsibilities to the new shareholder.

In the absence of any stated limitations imposed by the firm's Articles, shares of a firm are thus transferable like any other movable property.

Who is involved in Share transfer?

• Subscribers to the memorandum
• The executor of a will when someone has passed away
• Transferor
• Transferee
• Company (Whether listed or unlisted)

Procedure to transfer the shares of Private Limited Company

There are some limitations on how shares of the Private Limited Company can be transferred; the method to be followed is as follows:

1. To begin with, you must receive the share transfer deed in the required format.
2. Both the transferor and the transferee must properly sign this deed.
3. Add his or her name, address, and signature to this share transfer deed.
4. The share certificate must be sent to the corporation with the allocation letter or transfer document attached.
5. If the transfer is approved, the business should file the documentation and issue the transferor a new certificate.
6. The shareholder requesting the transfer will submit a request to the corporation.
7. All current members will receive notice from the company that the aforementioned shareholder has indicated a desire to transfer the shares.
8. If no current members have expressed interest in the company, the company will inform the transferor that he may sell his shares to a nonmember.

The transferor will then transfer the shares using the subsequent procedure:

Form SH-4: The procedure is started with this, which is the most significant transfer tool. The SH4 must be properly executed, dated, and stamped before being submitted to the corporation by the transferor. Information found in the SH4 includes:

• 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.
• The same company will check to verify if everything is in order after all the details have been submitted, and it will then register the information. Within a month of the transferee receiving the instrument of transfer, a share certificate is issued and endorsed for them.

Transfer of share by Physical mode

Although the conveyance of possession might transfer share ownership, the members and the corporation are bound by a contract. It is necessary to have a transfer instrument in place when shares are transferred. The process of transferring shares is lengthy and begins with the signature of a sale agreement before the transfer deed is signed and registered.

Transfer Deed

The share transfer deed should be executed as a legal document by the transferor and transferee. Along with the certificate that is pertinent to the transferred shares, this share transfer document must be properly signed and handed to the company. Any instrument of transfer that does not comply with these provisions will not be accepted by the corporation. Form SH 4 should be used to complete the transfer in the physical mode.

Acknowledgement

Before carefully reading the documentation, firms will occasionally provide a transferor who has filed a transfer with them an acknowledgment of the instrument. This notification will be in the form of a letter with a checklist for reviewing the transfer paperwork. Some companies also issue transfer receipts. The firm should not object to transferring the shares within two weeks of receiving the given notice in the event that the transferor submits a transfer application and only partially pays for the company shares. The corporation is not legally required to notify the transferor when the transfer of the documents is filed by the transferee.

Scrutiny

Examining the receipts for each document is necessary to confirm that all the transfer paperwork is there. If the transfer is unacceptable, the documents should be given back to the transferee. In addition, if the transferor's signature appears differently on the transfer instrument than it does on the company's records, the documents will be returned.

Approval

The committee or board of directors must provide its consent before any share transfers can take place. After approval, registration can only begin. If everything passes inspection and is accepted, the appropriate authority must authorize it, and the board must permit the transfer of shares. The power to approve a share transfer may be delegated by the board of directors to another committee that does not include the company's directors in cases where The articles of organization provide the board the authority to do this.

Registration

Without the registration of the share transfer, any share transfer is invalid. A share transfer form is a document that the transferee signs indicating their acceptance of the shares. With the business, this turns into a binding contract. Once the transferee's name has been recorded in the registration and approved by the company, he is eligible to join the company. It is not a legal necessity to keep the transfer registration updated.

Delivery of Share Certificate

Only after the business has registered those shares does the transfer become final. Within one month of receiving the firm's necessary transfer-related instrument, the company must deliver the share certificate. The transfer document needs to include the transferee's legal name.

Timelines

Businesses with a share capital: Within 60 days after the execution, the firm should refrain from registering any transfers of shares or ownership interests to any beneficial owners without the necessary documentation.

Application by the transferor: After the corporation notifies the transferor within two weeks of receiving the notification of receipt, the transfer shall not be registered until then.

No opposition certificate:The timelines listed below should be adhered to in the event of

Within two months of the date of incorporation for memorandum subscribers.

Within two months of the allocation date, all of the company's shares must be distributed.

debt obligation allocation within six months on the date of allocation.

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.