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Share Transfer of a Company - An Overview
Securities of a company can be in the form of shares, bonds, and debentures, treated as movable property. The transfer of securities can occur through any contract or arrangement between two or more persons, governed by the provisions of the Companies Act.
There’s a distinction between the transfer and transmission of shares:
Transfer of shares involves a voluntary transfer of rights and possibly duties from a member to another person.
Transmission of securities occurs when the title to these securities is transferred due to events like death, succession, inheritance, or bankruptcy, by operation of law.
What is Share Transfer?
Section 56 of the Companies Act, 2013, outlines provisions related to share transfers. The process differs between private and public companies:
In a private company (as per Section 2(68) of the Companies Act, 2013), share transfers are guided by the articles of association.
For public companies, Sections 56 to 59 of the Companies Act, 2013, govern the procedure.
A share transfer agreement may involve consideration and must adhere to the articles of association in the case of a Private Limited Company.
Participants in Share Transfer of a Company
Participants include subscribers to the memorandum (deemed first members), legal representatives in case of deceased members, transferors (those relinquishing title), transferees (those receiving rights), and the company (whether listed or unlisted).
Share transfers, whether by gift or sale, allow shareholders to change their status. Owning equity shares grants ownership in the company, voting rights, entitlement to dividends, capital appreciation, limited liability, and an exit option for shareholders.
Checklist for Transfer of Shares
- A drafted notice by the transferor stating the purpose.
- A stamped agreement (Form SH-4) signed by both transferor and transferee, meeting stamp duty requirements.
- Security devices period notification with the firm.
- Documents such as share certificate and distribution letter.
- Board resolution for private limited companies.
- Notice from the transferor.
- Board resolution.
- Stamped share transfer agreement (Form SH-4).
- No-objection certificate from existing shareholders.
- Offer letter from the company.
- Share certificates.
Procedure for Share Transfer of a Company
Ownership in a private limited company is defined by shareholding:
- Authorize share transfer per Articles of Association (AOA) for private limited companies.
- Provide notice and purpose of transfer by the transferor.
- Determine share price per AOA for offer to existing shareholders.
- If shareholders decline, transfer to outsiders.
- Physical mode transfer steps differ for private and other companies.
Timelines for Share Transfer of a Company
The company must deliver certificates within stipulated times:
- Subscribers: 2 months from incorporation.
- Allotment of shares: 2 months from allotment.
- Transfer deed receipt: 1 month from receipt.
- Debenture allotment: 6 months from allotment.
Penalties
Violations of the Companies Act 2013 incur penalties, with defaulting companies and officers liable to fines up to Rs. 50,000.
This version incorporates the requested changes and updates for clarity.
FAQs
You can transfer shares from one Demat account to another by requesting a delivery instruction slip from your broker. After completing the form, submit it to the broker of your choice to finalize the transfer.
Yes, the transfer of shares involves voluntary selling and buying, whereas the transmission of shares occurs automatically due to legal events.
Yes, in a private company, the transfer deed is a crucial document.
Form No. SH-4 – Securities Transfer Form, available on the TrueConnect official website. Form SH-4 is specified in sub-rule 1 of rule 11 of Companies (Share Capital & Debenture) Rules, 2014.
Either the transferor or transferee can initiate the transfer process.
