In this blog post, Shruti Sharma, a Legal Associate at BetterPlace Safety Solutions Pvt. Ltd. who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the process for transfer of shares.
Shares, as defined under Companies Act, means a share in the share capital and includes stock. As per Companies Act, shares of a member of a company shall be movable property. Moreover, the article of association provides the manner for the transfer of shares. However, shares of a company are freely transferable.
Provisions Under Companies Act
The legal provisions related to transfer of shares are:
- Section 56 of Companies Act, 2013.
- Rule 11 of Companies (Share Capital & Debentures) Rules 2014.
Share Transfer Restrictions In AOA
An article of association is the first document which needs to be reviewed prior to starting of share transfer procedure. As provided under section 2(58), AOA shall restrict the transfer of shares in a private company.
Article of association restricts the transfer of shares in two ways:
- PRE-EMPTIVE RIGHTS: If an article of association provides the option of pre-emption, then the shareholder must first offer shares to the existing members of the company at a determined price. Sometimes, the value of the shares needs to be determined by the formula provided itself in the AOA. If no existing members are willing to purchase the shares, then the shareholder can freely transfer the same to others.
- REFUSAL BY DIRECTORS: AOA also includes the conditions where director refuses to transfer shares.
No transfer of shares can be restricted by any agreement between the shareholders, but the AOA may restrict the same.
Procedure For Share Transfer In Private Company
The following are the steps to transfer shares:
- CHECK AOA: First step is to scrutinize AOA for the restrictions if provided therein such as rights of pre-emption etc.
- NOTICE TO DIRECTOR: A notice in writing shall be provided by the shareholder willing to transfer their shares to the Director of the company.
- DETERMINATION OF PRICE: A review of AOA is required to determine the price at which shareholders can transfer shares to the current shareholders of the company.
- NOTICE TO OTHER SHAREHOLDERS: The shareholder who is willing to transfer his shares must then give notice to the other shareholders in the company, and if they are not interested, the shares can be transferred to the outsiders. Moreover, the notice should mention the last date to purchase the shares and the price.
How To Transfer Shares Of A Private Limited Company
The person who transfers shares termed as “transferor” and the person who purchases the shares termed as “transferee.”
INTIMATION TO COMPANY: Transferor should give notice to the company for his intention to transfer shares. Here comes the duty of a company where the company will notify the existing shareholders about the price, time limit within which they can purchase the shares, availability of shares, etc.
TRANSFER DEED: To transfer shares the share deed is required, it is a document which needs to be duly executed both by the transferor and transferee.
Transfer deed is in Form SH-4 which should have been:
- Duly stamped;
- Having Father’s name, address, occupation, etc.;
- Number of shares transferred;
- Certificate number of share transferred;
- Consideration i.e. value of shares transferred;
- Executed by both the parties i.e. transferor and transferee.
SHARE CERTIFICATE/LETTER OF ALLOTMENT: Letter of allotment must be submitted to the company along with transfer deed.
PASSING OF RESOLUTION: Board shall register the transfer of shares after receiving and considering the deed by passing a resolution.
Legal Provisions For Share Transfer
- STAMP DUTY ON TRANSFER DEED: Stamp duty is 25 paisa for every Rs.100 or part thereof of the value of shares.
- Period FOR DEPOSIT TRANSFER DEED: The transfer deed i.e. Form SH4 shall be submitted to the company within 60 (sixty) days of its execution by or on behalf of transferor or transferee.
- TIME FOR ISSUANCE OF CERTIFICATE: As per Section 56(4), the company shall provide a certificate for transfer of shares within one-month application for registration of transfer of shares.
- REPRESENTATIVE: No restrictions can be imposed where the shareholder intends to transfer his/her shares to their representative.
- LEGAL REPRESENTATIVE: In the case of death of a shareholder , the legal representative may register the shares in the name of heirs i.e. on whom the shares have been devolved.
Limitation Period For Appeal After Refusal To Register Transfer By Private Company
As provided under section 58(3), the transferee of shares may appeal to the Tribunal within 30 days from the receipt of the company and in case no receipt has been received by the company than within 60 days from the date when transfer deed was delivered to the company.
Limitation Period For Appeal After Refusal To Register Transfer By Public Company
As provided under section 58(4), the transferee of shares may appeal to the Tribunal within 60 days from the receipt of the company and in case no receipt has been received by the company than within 90 days from the date when transfer deed was delivered to the company.
Penalty In Case Of Non-compliance
Every company shall be liable if they don’t comply with the rules as provided in the companies act the company shall be liable for fine not less than 25000 but it may extend to 5 lacs and every officer of the company who will be found as a defaulter shall be liable to a fine not less than 10,000 but which may be extended to 1 lac.