Transfer of Shares Procedure in Private Limited Company

In this Article, we will inform you about what is a Transfer of shares and what Is the procedure of transfer of shares in the private limited company in India.So read this article to gain knowledge regarding Transfer Of share.Transfer of Shares and Its Procedure in Private Limited Company

Transfer of shares refers to the transfer of title to shares, voluntarily, by one party to another.The Transfer of shares in a Private Limited Company is to be done in accordance with the provisions of Companies Act of 2013.  

The major provisions related to the transferability of shares are listed below:

An instrument for Transfer of Shares is compulsory:

Under the Sec. 108(1) of the companies act,2013 it is mentioned that a company shall not register a transfer unless it has a possession of the following documents, which are mentioned below as follows:

(a) A Decent instrument of transfer duly stamped and complete by or favoring the transferor or the transferee, and specifying the name, address, and occupation of the transferee.

(b) The certificate linking to the share, or, if no certificate is present, then the letter of allotment is to be presented.

Prescribed from:

Sec. 108(1A) lays down that every instrument of transfer shall be in the prescribed form. The rules are:

(a) It shall be presented to the arbitrary authority before it is signed by or on favoring the transferor.

(b) The recommended authority shall stamp or otherwise approve thereon the date on which the instrument is so presented.

(c) If the share is one which is dealt with in an identified stock exchange the instrument of transfer shall be conveyed to the company any time before the next closing of the register of members or within two months from such date of submission, whichever is later. Otherwise, the same will be delivered to the company within two months from the date of presentation to the recommended authority.

(d) The above arrangement does not pertain to share deposited (as a security for a Loan) to State Bank of India, or any scheduled bank or any banking company. The transferee turns into a member of a company only when the transfer is registered by the company.

 Legal representative:

Sec. 109 states that the legal representative of a departed member can transfer shares even though he is not himself a member.

Lost Instrument:

If the instrument of transfer is misplaced, the directors may grant the transfer on a stipulation as to indemnify as they think fit.

Application for transfer:

Sec. 110(1) promulgate that an application for the registration of a transfer of shares or other involvement of a member of a company may be made either by the transferor or by the transferee.

Likewise, Sec. 110(2) of the companies act, states that where the application is made by the transferor and relates to partly paid shares, the transfer shall not be certified, unless the company gives notification of the application to the transferee and the transferee makes no rejection of the transfer within two weeks of the time he is required to have received the notice by post.

Refusal:

Sec 111(1) states that the articles may entitle the company to refuse to register a transfer or transmission of shares and Sec. 111(2) also states that in cases of such refusal, the applicant is to be advised within two months. If default is made, the company and every officer in default are subject to a fine up to Rs. 50 per day.

Procedure or Method for Transfer of Shares in a Private Company:

Step 1: The first step is to procure the share transfer deed in a format as recommended by the  Companies Act of 2013.

Step 2: Once the share deed is secured in prescribed format, it is to be suitably completed by the transferor and transferee or their agents, as the case may be. In the event of the death of transferor or the transferee, their legal representatives may duly sign the deed.

Step 3: The appropriately signed and accomplished share deed should bear stamps as per the provisions of Indian Stamp Act and also the stamp duty proclamation in force in the concerned state where the deed is being executed. The present rate of stamp duty is 25 paise for every hundred rupees of the value of shares or the part of such shares. It is to be attentively noted that the stamps affixed needs to be canceled at the time or before the signing of the transfer deed.

Step 4:

The signing of transfer deed by the transferor and transferee or their agents is to be endorsed by a person, who is alleged to give his signature, name and full permanent address on the said deed.

Step 5:  In This step attaching the share certificate or allotment letter with the share transfer deed in the recommended format is carried out and is conveyed to the company.

Step 6: Once the share transfer deed is delivered to the company, the board of directors shall consider the same. If the documentation is found to be in order, the board will record the transfer by passing a resolution. This step completes the transfer of shares in a private limited company in India.

Conclusion

To summarise this whole article, here is the short description of Steps for Transferring Shares of Private Limited Company that is as follows

  • Obtain a share transfer deed
  • The share transfer deed must be completed by the transferor and transferee or their agents.
  • Share transfer deed must have stamp and Stamp Duty Notification
  • The witness needs to sign the share transfer deed with name and address.
  • the share certificate with the share transfer deed must be attached and delivered to the company
  • If all the documents are found to be in prescribed order, the board of director shall register the transfer by passing a resolution.
  • However, on the refusal of such transfer of shares, a notice is to be sent to the transferee within 30 days of receipt of notification.