Company Share Transfer

Company Share Transfer

Apart from the change in the director or address of the company, one of the major changes that take place in the company is the share transfer among the members of the company or members outside the company. A share transfer is a process of transferring the shares from one person to another either by the sale of shares or as a gift. This is one of the major changes as shares define the voting rights of the company and voting rights further define the members of the Board of directors (BOD) of the company. The shares represent the power by which the leaders of the company are elected. They represent the capital of the company raised through the equities in the market; there are varieties of shares available in the market. And each of them has its own importance.

Share transfer of a private limited company is governed by the articles of the company. As per the company act, 2013 it provides the procedure of transfer of share by both the public and private companies. Moreover, very few people tend to know this but the transfer of shares helps to have a perpetual succession of a business enterprise.

After the death of the shareholder, the shares are thus transferred to the next person whoever the will is addressed to. If after the death of a shareholder, shares are discontinued then in that case the company would have also wound up. But that is not the case. Also, the shareholders can transfer the shares at their will, they can transfer the shares to the outsiders too by complying with the set of rules and regulations regarding the share transfer procedure.

Generally, the securities of a company including the shares are freely transferable though there are certain restrictions imposed on the transfer of shares of a private company as provided in articles. Such restrictions are being imposed to protect the interest of shareholders and the other security holders. According to section 56 of the company's act 2013, transfer of the shares of the company and other securities is only registered by the company when a proper instrument of transfer of shares is filed in Form No. SH 4 in a prescribed manner. Form SH 4 for the transfer of shares must be duly stamped and executed by or on behalf of the transferor and the transferee.

Form SH 4 is to be sent by the transferor and transferee to the company within 60 days from the date of execution of share transfer agreement along with the certificate of share transfer or certificate relating to securities. In case there is no such transfer certificate then the application regarding the transfer of shares must be sent along with the letter of allotment of securities.

The process to transfer the shares of a private limited company

  1. Get the share transfer deed in the prescribed format

  2. Execute the share transfer deed duly signed by the Transferee or Transferor

  3. As per the Indian Stamp Act, stamp the share transfer deed.

  4. Get a sign of a witness on a share transfer deed with his/her name, signature, and address.

  5. Attach the allotment letter or the share certificate with the transfer deed and deliver the same to the company.

  6. After that Company must process the documents and if approved, the new share certificate is issued in the name of the transferee.

Reasons for share transfer

Shareholders have a right to transfer their shares to the existing shareholders of the third parties. Below are some of the examples why share transfer can take place

  • Shareholders want to exit the company by transferring the shares to existing third parties

  • Succession planning (transferring shares to siblings or spouses)

  • Share exchange

  • Company takeover

  • Company restructuring

In the case of a private limited company, Directors have a right to refuse any transfer of shares until they are fully satisfied with the reason for share transfer and are not oppressing any shareholder rights.

Resolve your queries

1. How shares can be transferred?

The transferor or shareholder provides the transferee with the duly completed as well as signed transfer form and also the share certificate regarding shares to be transferred.

2. Which company shares are freely transferable?

A public company shares are freely transferable. According to the companies act, 1956 states that especially the shares of a public company are freely transferable.

3. What is a share certificate and how it is issued?

A share certificate is a certificate issued by the company that certifies that when the certificate is issued to a person then that certain person is the registered owner of shares in the company.

4. Can I sell my shares in a limited company?

According to the companies’ act 2006, conditions mentioned in the company’s articles of association and shareholder agreement, the shares can be transferred or sold to the other person. To transfer the shares a stock transfer form must be completed.

5. Do the share certificates expire?

No, share certificate does not have an expiry date. However, there may be various reasons in which the shares of a particular company stop having any value.

6. What information does the share certificate hold?

Share certificate holds the primary information about the name, address or the number of shares held by a person.

7. Is a share certificate proof of ownership?

A share certificate is the written documents signed on behalf of the company and serves as legal proof of the ownership of shares. A share certificate is also known as a stock certificate.

8. How can I add new shareholders to my private limited company?

You can add shareholders to your company at any point after incorporation. In order to add the shareholders, the existing shares need to be transferred or sold by the existing shareholder to the new shareholder.

9. Who can issue the share certificate?

The share certificate is issued by the company stating that the name of a person on the certificate is the owner of the shares of the company.

10. What can be the reasons for the share transfer?

  • Shareholders want to exit the company by transferring the shares to existing third parties

  • Succession planning (transferring shares to siblings or spouses)

  • Share exchange

  • Company takeover

  • Company restructuring

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