Transfer of Shares in Case of Private Company in India

Transfer of shares in the case of a private company is one essential condition; furthermore, the Articles of Association govern a private corporation, as stated in Section 2(68) of the Companies Act, 2013.

The secretarial procedures and rules, on the other hand, follow the Articles of Association for the share transfer elements.

Let us discuss in detail the process followed, the mandatory steps while issuing transfer documents, compliance aspects, and non-compliance aspects.

The Entire Process of Transferring Shares.

Proper Notice by the Transferor

In the case of a private company, however, the transfer of shares must provide written notice to confirm the legal transfer of the specific share.

Read: Register a Private Limited Company in India

Follow these compliance aspects when transferring shares in a Private Company.

  • Moreover, the company must inform all members about the share price and the pricing of the shares that it will offer to shareholders.

  • The auditors and directors of a Private Limited Company determine the share pricing when transferring shares. After the company announces this to its members, it must effectively communicate alternative options for purchasing the transferred shares.

  • While providing the alternatives, you should also mention the time limit.

  • If the shareholders of the company do not choose to purchase shares in the event of a share transfer in a Private Limited company, then the shares can be transferred to an outsider.

The Regulatory Procedure-

There must be proper execution of the agreement in Form SH-4, which shall be accepted by both the transferor and transferee. Furthermore, other aspects that one must include in the agreement are:

  • 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 documents, along with clear details of the transferor and transferee, are essential for a smooth transaction.

  • Folio Number for both the parties(Transferor and Transferee)
  • A number of shares were transferred, along with their nominal value, and the consideration received.

Time Stamp for depositing the Transfer Instrument with the company.

  • Upon properly completing Form 4, the transferor or transferee must then deliver it to the company within 60 days of completion.

  • The corporation may register the instrument as necessary if it’s lost or not delivered within the prescribed time frame, as deemed by the board. Additionally, it can take action to ensure proper handling in such situations.

  • The stamp affixed on the Transfer deed (Agreement) is subject to valuation.

  • Value it at 25 paise per 100 Rupees of the share’s transferred value.

Share Certificate and Letter of Allotment.

File the share certificate with the company. If the share certificate exists, file it along with the transferred instrument.

Resolution by the Board

  • After the company receives and checks the relevant documents, it passes a resolution at the Board to accept them, followed by passing a board resolution.

  • Meeting. After that, the transferee’s name is recorded in the members’ register as their beneficial owner. If all goes according to plan, the board will issue a registration resolution.

Delegating the power of  Share Transfer

  • The delegation can transfer the authority to a director who can unilaterally impose restrictions on the transfer of shares, such as a limit of 1000 shares. The committee can then decide through resolutions, like a Circular resolution, whether to approve or reject these restrictions.

  • 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

Once the board passes a resolution of the share transfer, the certificate can be handed over to the transferee.

Transfer of Shares in Case of Private Company: Important Points to Remember

  • The articles of association may control the transferability of shares in private businesses.

  • The gift of shares shall not be termed as non-compliant if certain formalities are not complete.
  • Stamping is essential because unstamped transfer forms can lead to future legal issues.

What if the Shares Get Transferred After the Expiry of 60 Days

  • The directors of the company decide to register the shares on the Indemnity Bond basis.

  • Furthermore, to prevent objections, we will transfer a letter to the transferor as a proper legal measure.

  • If we don’t receive a reply within a reasonable time, it can affect the transfer based on an indemnity bond.

  • The transferor is the holder unless the Private Company transfers and registers the shares in the company’s registers of members.

Synopsis of the Procedure of Shares

  1. After preparing the transfer document, the company presents it to the ROC (Registrar of Companies).

  2. Transfer Document must be complete in all aspects.
  • They completed all the details thoroughly.

  • Signed by both parties(transferor and transferee).
  1. Time Limits for the deposit of transfer deed
  • It shall be transferred within 2 months from the date of stamping.

  1. The previous owner (transferee) must send a No objection letter.

  2. The duty of the company is to monitor the effect of the transfer of shares. It either accepts or rejects based on the legalities and procedure complexities.

    If the transfer is within the legal aspects and follows the rules and regulations, then issue the share certificate to the newly owned 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 in default shall face a fine ranging from a minimum of 10,000 rupees to a maximum of 100,000 rupees. Additionally, every person or officer in default shall be liable to a fine ranging from a minimum of 25,000 rupees to a maximum of 500,000 rupees.

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