In India, the Company’s shareholding determines who owns a Private Limited Company. Shares of the company must be transferred 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.
The Companies Registry and the Ministry of Corporate Affairs are the regulatory body or authorities for the transfer of Company shares. (MCA)
Transferring shares from one party to another is governed by the terms of the Companies Act, 2013, which was passed in 2013. The rules governing the transfer of shares are discussed in Section 187 of the 2013 Companies Act.
The ability to transfer shares is one of the company’s key characteristics. As stated in the articles of incorporation, the shares and debentures are movable property and are transferable, particularly the shares of any members of a public business.
The only way to transfer shares is through a written agreement or contract between two or more parties. The Companies Act’s provisions primarily address the securities’ transfer and transmission. the transfer of securities because of bankruptcy, succession, or inheritance. Any agreement or contract between two or more people has the potential to result in the transfer of securities. The Companies Act’s provisions cover the transfer and transmission of securities.
Transferring shares entails willingly ceding a company member’s rights and perhaps even duties. The shareholder who wants to no longer be a member of the company transfers his or her rights and obligations to the person who wishes to join the company.
In the absence of any stated limitations imposed by the Firm’s Articles, shares of a company are thus transferable like any other movable property.
Who takes part in the transfer of shares
- Participants in the memo
- The executor of a will when someone has passed away
PROCEDURE TO TRANSFER THE SHARES OF PRIVATE LIMITED COMPANY
- To begin with, you must receive the share transfer deed in the required format.
- Both the transferor and the transferee must properly sign this deed.
- Add his or her name, address, and signature to this share transfer deed.
- The share certificate must be sent to the corporation with the allocation letter or transfer document attached.
- If the transfer is approved, the business should file the documentation and issue the transferor a new certificate.
- The shareholder will ask the business to transfer his shares.
- The corporation will notify all current members that the shareholder has indicated a desire to transfer the shares.
- The corporation will inform the transferor that he can sell his shares to a non-member if the existing member has expressed interest in the company.
The transferor will then transfer the shares using the subsequent procedure:The most crucial transfer document is Form SH-4, which is used to start the procedure. The duly executed, date-stamped, and submitted SH4 must be given to the corporation by the transferor. The following details are found in the SH4:
- Date of execution
- CIN of the business
- Name of the Business
- The securities’ class
- The securities’ nominal value, amount called up, and amount paid up.
- The securities that will be exchanged for money or Rs… Unique number of shares, certificate number
- Name, Folio No., and signature of the transferor the same should be seen as well.
- Name of the transferee and information about him or her, such as his or her father’s name, residence, email address, and profession Folio; signed.
- The Indian Stamp Act of 1899 requires that the transfer document be duly stamped.
- After receiving all the information, the same business will check to make sure everything is in order before registering the information. Within a month after receiving the Instrument of Transfer, a share certificate is issued and endorsed to the transferee.
Share transfer through physical mode
Although there is a legal agreement between the members and the corporation, the ownership of the shares can be transferred by delivery of possession. An instrument of transfer is necessary whenever shares are transferred. The process of transferring shares involves several steps, beginning with the execution of the deed of transfer and ending with the registration of the transfer.
- Relocation Deed: The share transfer deed should be signed by the transferor and transferee. The certificate that is pertinent to the transferred shares must also be submitted to the company along with this share transfer paperwork, which must be properly signed. Neither the business nor any instrument of the transfer that does not adhere to these rules. The transfer must be carried out in Form SH 4 when operating in physical mode.
- Acknowledgment: Sometimes businesses will provide a transferor who has filed a transfer with them an acknowledgment of the instrument before carefully reviewing the paperwork. This warning appears as a letter and includes a checklist for carefully reviewing the transfer paperwork. Additionally, some businesses print transfer receipts. The company should not object to transferring the shares within two weeks of receiving the given notification if the transfer application is submitted by the transferor and payment for the company shares is partially made. When the transfer of the documents is filed by the transferee, the corporation is not legally required to notify the transferor.
- Scrutiny: There should be an examination relying on the receipts of every transfer document to ensure that everything is in order. Documents should be returned to the transferee if the transfer is not acceptable. Additionally, the documents will be returned if the transferor’s signature differs between the transfer instrument and the signature on the company’s records.
- Approval: Every transfer of shares requires approval from the committee or the board of directors. Registration doesn’t take place till after approval. 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 board is authorized to do so by the articles of association.
- Registration: Without the registration of the share transfer, any transfer of shares is insufficient. The transferee’s acceptance of the shares is confirmed in a share transfer form. When done legally, agreement with the business. The transferee becomes eligible to join the company if the company approves and registers his name, which is entered in the registry. The preservation of the transfer register is not mandated by law.
- Share Certificate Delivery: 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 appropriate name of the transferee should be written on the transfer document.
DOCUMENT REQUIRED FOR COMPANY SHARE TRANSFER
- Decision made by the Company Regarding the Transfer of Company Shares
- Transfer Notice from the Private Limited Company
- Company’s Certificate of Incorporation
- Articles of Association and the Company’s Memorandum of Association
- Offer letter from a current corporate stakeholder
- Existing Shareholders’ Approval for the Transfer
- Paid stamp duty
- Company’s Share Transfer Deed
- Additional Resolutions Associated with Share Transfers
- Any transfer-related certificates.
Deadlines for transferring company shares
A valid instrument of transfer for the company shares is required for any firm with a share capital of any kind. 60 days after the execution date, the transfer must be made.
The transfer of shares from the transferor to the transferee must be accompanied by some sort of notice. The transferee shouldn’t object in any way to this transfer arrangement. The No Objection Certificate must be submitted no later than two weeks after the notice.
A business would provide the certifications in accordance with the specifications and within the allotted times.
- Those who subscribe to a memorandum have two months from the incorporation date to do so.
- For allotment of shares- usually, this would take two months from the date of allotment
Businesses having a share capital: The company should not record any transfer of shares or ownership interest to any beneficial owners with proper instruments (within 60 days of the execution).
Application from the transferor: The transfer should not be recorded until the transferor has been notified by the company within two weeks of the receipt of the notification of receipt.
- For subscribers to the memorandum – within two months of the incorporation date.
- Distributing all the company’s shares within two months of the allocation date.
- Allocation of a debenture within six months of the allocation date.
- Minimum and maximum fines for businesses are Rs. 25,000 and Rs. 5,00,000.
- The least severe punishment imposed for an officer in default