Transfer of shares means transferring the title of the shares by one party to the other voluntarily. Transfer of title to shares is governed by the Companies Act 2013.
The Directors of a Company are chosen by the shareholders for managing its day-to-day operations. This infers that inspite of the directors managing the daily affairs of the Company; the shareholders are the ultimate owners of the Company. The ownership of a Company can be transferred by transferring the shares of the company from one name to the other.
Generally in a Private Limited Company, the right to transfer shares is regulated by its Articles of Association. Share Transfer in contravention of the Articles and without consideration is considered completely void.
The provision for the transfer of shares in a Private Limited Company is a fundamental characteristic of the securities of a Company. Inspite of some limitations on the transfer of shares in a Private Limited Company as per the Articles, the securities of a Company are generally freely transferable.
In this article, we will discuss about the procedure for transfer of shares of a Private Limited Company.
Steps wise shares transfer of a Private Limited Company:
- Intimation to Company: A written notice about his/her intent on the transfer of shares has to be provided by the transferor to the Company.
- Company’s Duty: Once the transferor provides written notice to the Company about the transfer of shares, the Company will inform all the Company members about the availability of the shares, the price at which shares are available along with the time limit within which they should communicate their option to purchase shares on transfer. If no member comes forward to buy the shares then the shares become available to an outsider, wherein the Company has no choice but to accept the transfer.
- Execution Form: The share transfer deed in form SH-4 must be executed by both the parties i.e. the transferor and the transferee. In form SH-4, all the details should be completely filled-in. The deed needs to be duly stamped, dated, adequately valued and cancelled for execution.
- Share Certificate or Allotment letter: The appropriate allotment letter or share certificate has to be attached with the share transfer deed and within 60 days from the date of execution, it must be sent to the Company either by the transferor or the transferee of the shares.
- Board Resolution: Once the share transfer deed is delivered to the Company, the board of directors shall consider the same. If all the documents are in place, the board will record the transfer by passing a Board Resolution.
- Issue of Share certificates of Transfer: The Company will within one month of passing of Board Resolution issue share certificates in the favor of transferee by endorsing the name of Transferee behind the share certificates.