Transfer of shares in case of private company is one essential condition. The Articles of Association govern a private corporation, according to Section 2(68) of the Companies Act, 2013. For the share transfer elements, the secretarial procedures and rules are followed in accordance with the Articles of Association.
Let us discuss in detail the process followed, the mandatory steps while issuing transfer documents, compliances aspects and non-compliance aspects.
The Entire Process of Transferring Shares.
Proper Notice by the Transferor
Transfer of shares in case of Private company must give proper notice in writing that the particular share is legally transferred.
Read: Register a Private Limited Company in India
Compliances aspects that are to be followed for the transfer of shares in a Private Company.
- The company is responsible for informing all members of the share price and the pricing of the shares that will be offered to shareholders.
- The auditors and directors of a Private Limited Company establish the pricing when shares are transferred. The auditors and directors of a Private Limited Company establish the pricing when shares are transferred. After the company’s announcement to members, effective communication must be made by the company to provide alternatives to purchase transferred shares.
- The time limit shall also be mentioned while providing the alternatives.
- Share Purchase by outsider-If the shareholders of the company don’t avail of the option of purchasing shares in case of transfer of share in Private Limited, then the shares can be transferred to the outsider.
The Regulatory Procedure-
There must be proper execution of the agreement in Form SH-4 which shall be accepted by both transferor and transferee. Other aspects that one must-have in the agreement:
- As per the Indian Stamp Act, there must be a stamp on the transfer deed and the rate of transfer of shares in case of transfer of shares by a Private Limited company.
- Properly dated, along with mentioning details of transferor and transferee
- Folio Number for both the parties(Transferor and Transferee)
- A number of shares transferred, Nominal value and Consideration received.
Time Stamp for depositing the Transfer Instrument with the company.
- After properly completing Form 4, the transferor or transferee must deliver it to the company within 60 days of completion.
- If the instrument is lost or not delivered within the prescribed time frame, the corporation may register it as the board deems necessary.
- Valuation of stamp that is affixed on the Transfer deed(Agreement)
- It is valued at 25 paise per 100 Rupees of the value of share transferred.
Share Certificate and Letter of Allotment.
The share certificate needs to be filed to the company. If the share certificate exists then the letter of allotment must be filed along with the transferred instrument.
Resolution by the Board
- A board resolution must be passed after the company receives the relevant documents, checks them, and passes a resolution to accept them at the Board
- Meeting. After that, the transferee’s name is recorded in the members’ register as their beneficial owner, and if all goes according to plan, the board will issue a registration resolution in case of transfer of shares in a Private Company.
Delegating the power of Share Transfer
- The delegation can be transferred to a director who solely would place restrictions regarding the transfer of shares, let us say for example 1000 shares, and decisions can take place by resolutions (Example -Circular resolution) and the committee can approve or reject the same.
- Moreover, under Listing Agreements, there are powers where a committee or registrar can work on these transactions at least one time in a fortnight.
Issue of share certificate to the transferee
In case of transfer of share by a Private Company, after the board passes a resolution of the share transfer, the certificate can be handed over to the transferee and the name of the transferee will be on the share certificate.
Transfer of Shares in Case of Private Company: Importent Points to Remember
- The transferability of shares in private businesses might be controlled by the articles of association.
- The gift of shares shall not be termed as non-compliant if certain formalities are not complete.
- Stamping is very crucial as the transfer forms that are not stamped can create legal issues in future.
What if the Shares Get Transferred After the Expiry of 60 Days
- The company can register the shares on the Indemnity Bond basis, which is decided among the directors of the company.
- Moreover, as a proper Legal measure, to avoid any objections, a letter shall be transferred to the transferor.
- If there is no reply received during the reasonable time, it can affect the transfer on an indemnity bond basis.
- Unless the shares of the Private Company are transferred to Transferee and are registered in the company’s registers of members, the transferor is the considered holder.
Synopsis of the Procedure of Shares
- After preparing the transfer document it is presented to ROC(Registrar of Companies)
- Transfer Document must be complete in all aspects.
- Entire details completed fully.
- Signed by both parties(transferor and transferee).
- Time Limits for the deposit of transfer deed
- After the date of stamping, within 2 months, it shall get transferred.
- No objection letter must be received from the previous owner(Transferee)
- The duty of the company is to monitor the effect of transfer of shares, either accept or reject based on the legalities and procedure complexities and if the transfer is within the legal aspects and following the rules and regulations then, issue the share certificate to the newly owned members of the company and register their names in the Registrar of the new members.
Non-Compliance in Case of Transfer of Shares in Case of Private Company
In the case of a Private Company, any failure to comply with the provisions of share transfer will result in the following penalties:
Every person or officer who is in default will be fined not less than 25000 rupees and up to 500000 rupees, and every person or officer who is in default will be fined not less than 10000 rupees and up to 100000 rupees.