Shareholders are known as the owner of a Private Limited Company. If a company wants to introduce new investors or any shareholder wants to transfer his/her ownership then the shares of the private limited company needs to be transferred. A Private Limited Company cannot invite public to subscribe to any securities of the company.
For transfer of shares provisions from following resources are considered:-
Section 56 of the Companies Act,2013
Rule 11 of Companies ( Share Capital & Debentures ) Rules 2014
Provisions given in model articles of association given in Table ‘F’ of Schedule- 1
According to section 56 of the Companies Act,2013 a company shall not register a transfer of securities of the company , or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
(3) Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
(b) within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
(c) within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section (1) or, as the case may be, of the intimation of transmission under sub-section (2), in the case of a transfer or transmission of securities;
(d) within a period of six months from the date of allotment in the case of any allotment of debenture:
Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
(5) The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
According to Rule 11 of Companies (Share Capital & Debentures) Rules 2014: Instrument of transfer.-
An instrument of transfer of securities held in physical form shall be in Form SH.4 and every instrument of transfer with the date of its execution specified thereon shall be delivered to the company within sixty (60) days from the date of such execution.
In the case of a company not having a share capital, provisions of sub-rule (1) shall apply as if the references therein to securities were references instead to the interest of the member in the company.
A company shall not register a transfer of partly paid shares unless the company has given a notice in Form No. SH.5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of receipt of the notice.
Procedure For Transfer Of Shares
Check whether the Articles of Association allows you for transfer of shares, if not then amend the articles by passing special resolution in extra-ordinary general meeting.
The transferor shall give a notice in writing for his intention to transfer his shares to the company.
The company will now inform the other members as regards the availability of shares and the price at which the shares would be available and will quote a time limit within which the members can purchase the shares. If within the time limit no member comes to purchase the shares then the shares will be offered to an outsider and if the outsider accepts the shares then the company will have to accept the transfer. The price of the shares is finalized by the directors or the auditors of the company.
Obtain the Share transfer deed in form SH-4 duly executed by both the transferor and transferee. The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty Notification. The present rate of transfer of shares is 25 Paise for every one hundred rupees of the value of shares or part. Cancel the stamps affixed at the time or before the signing of the transfer deed. The signatures of both the transferor and transferee must be witnessed by a person whose details like his signature, name, and address.
Share certificate or allotment letter needs to be attached to the share transfer deed and deliver it to the company. The share transfer deed needs to be deposited with the company within 60 days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.
If the documents are in order then the board shall register the transfer by passing a board resolution. If the board refuses to register the transfer of shares then a notice will be served to the transferee within 30 days of receipt of such share deed and an appeal can be done to the tribunal within 30 days from the date of notice served by the company.
It is to be noted that no such notice or intimation is given to ROC. The share transfer details will be given to ROC in the annual return of the company in e-form MGT-7.
Transfer of Partly Paid Up Shares
In case of transfer of partly paid-up shares the company will give a notice to the transferee in form no. SH-5 and when the transferee will give a no objection certificate to the company within 2 weeks from the date of receipt of notice after that the company will register the share transfer.
Penalty for Non-compliance
As per the provisions of the Act, where there is a non-compliance by the company of the provisions relating to the transfer of shares, the company shall be punishable with the fine not less than Twenty-Five Thousand Rupees but which may extend to Five Lac Rupees and every officer in default will be punishable by a fine not less than Ten Thousand Rupees but which may extend to One Lac Rupees.
This article was drafted with the help of inputs provided by Kunal Tibrewal from our Corporate Law Team. If you have any queries feel free to drop a line at firstname.lastname@example.org.