Shares Transfer or Transmission in a private limited company are bound by few rules and regulations. Here we are discussing few steps and process how transfer and transmission of shares happen in a private limited company among its shareholders.

The shares or debentures or other interest of any member in a company is a movable property, transferable in the manner provided by the articles of the company. [1]

Reference 1- www.corporatelawcorpus.clogspot.in/?m=1

Shares Transfer Limits:

The companies Act, 2013 defines private company in Section 2(68) –

Private company means a company having a minimum paid up share capital of one lakh rupees or such higher paid up share capital as may be prescribed. This agreement allows following

• Restricts the right to transfer its shares.
• Limits number of its members to two hundred. (Exception one person company)
• Prohibits invitation to the public to subscribe for any securities of the company. [2]

Reference 2 – Section 2(68) companies Act, 2013

Shares Transfer Procedure:

Generally the procedure for of shares transfer in a private company is stated in company’s Article of Association. If any shareholder whether preference or equity wish to transfer his shares then he can take the following steps:

Step 1:

The one who intended to transfer his shares, he should give in writing his intention to transfer shares to the company.

Step 2:

The Company will notify to other member of the company regarding the availability of shares.

Step 3:

Company’s board of directors and auditors generally decides the price of the share.

Step 4:

If no other member has come forward in order to purchase the available shares, then the person can transfer his shares to an outsider by issuing Form 7B.

Shares Transfer Rules:

Rule 1 – Section 56 of the companies Act, 2013 states

Company shall not register a transfer of securities of the company, unless a proper instrument of transfer duly stamped dated and executed by or on behalf of the transferor and the transferee has been delivered to the company 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, then along with the related letter of allotment of securities. [3]

Reference 3- Section 56(1) Companies Act, 2013

Rule 2 – Sub Clause 2 States that

Nothing in section 56(1) shall prejudice any power of the company to register on the 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. [4]

Reference 4 – Section 56(2) Companies Act, 2013

Rule 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. 

Reference 5 – Section 56(3) Companies Act, 2013

Rule 4 –

Every company shall, unless prohibited by any provision of law or any other of court, tribunal or other authority, deliver the certificates to the memorandum.

Rule 5 –

Within a period of two months from the date of incorporation, in case of subscribers to the memorandum.

Rule 6 –

Within a period of two months from the date of allotment, in the case of any allotment of any of its shares.

Rule 7 –

Within a period of one month from the date of  receipt by the company of the instrument of transfer under subsection 1 or as the case maybe of  the intimation of transmission under sub section 2 in the case of transfer or transmission of securities.

Rule 8 –

Within a period of six months from the date of allotment in the case of any allotment of debenture. [6]

Reference 6 – Section 56(4) Companies Act, 2013

Shares Transfer Restriction:

There are certain cases where restrictions on transfer of shares is not applicable-  when the transferor is transferring his shares to his representative(s) and when in the event of  death of a shareholder, the legal heirs of the shareholder on whom the shares have been devolved, they are entitled to get those shares.

Transferor and Transferee should follow

Step 1:

The transferor should obtain the transferor deed in the prescribed format.

Step 2:

The transfer deed should be duly signed by the transferor and transferee.

Step 3:

Stamp the share transfer deed according to the Indian Stamp Act and Stamp duty notification.

Step 4:

The deed should be signed by the witness and also mentioned his/her name and address.

Step 5:

The share certificate and allotment letter should be enclosed with the transfer deed and deliver the same to the company.

Step 6:

The Company will further process the documents and if it gets approved, the company will issue the new certificate in the name of the transferee.

Basically share transfer procedure in private limited company is not so complicated at all. First review AOA (Article of Association) of the private limited company and understand restrictions. Then give notice to shareholders to company for pricing of transferable shares.