HM Journal

Procedure for Transfer of Shares

Introduction

One of the most important requirements for the Company form of business is the free transferability of shares, which is subject to various restrictions in private businesses. The company’s shareholding determines an individual’s ownership of a firm with a private limited company registration. One of the most significant characteristics of a company’s securities is their transferability. The shareholding in a private limited company might be sold to attract new investors or to transfer control of the business. The company Act, 2013 specifies the provisions related to transfer of share in section 56. Rule 11 of the Companies (Share Capital & Debentures) Rules 2014 and provisions given in Articles of Association which generally guide the private company also talks about the procedure of share transfer. Before proceeding to the procedure for transfer of shares, it must be noted that there are some criteria which must be fulfilled to successfully transfer shares and these include share transfer without a consideration is void.

Section 44 of the Companies Act, 2013 states that any member’s shares, debentures, or other interest in a company is moveable property that can be transferred according to the company’s articles. Section 56 states the procedure to share transfer.

Following is the procedure to transferability of shares in private companies as per Indian statutes:

  1. The transferor holding the share must give a notice in writing that he intends to transfer his share to the company.
  2. Duty of the Firm: The firm, in turn, should inform other members about the availability of shares and the price at which they can purchase them. The price is usually set by the company’s directors or auditors based on the book worth of the shares.

The firm should also inform members of the deadline by which they must indicate their desire to buy shares on transfer. If no one within the group steps up to buy shares, the shares can be sold to an outsider, and the firm will have no choice but to accept the sale.

  1. A copy of the SH-4 share transfer deed signed by both the transferor and the transferee should be received. SH-4 specifies the details of both transferor and transferee including nominal values of shares, consideration received and certificate number of shares transferred.
  2. Share certificate or letter of allotment must be lodged with the company along with the instrument of transfer.
  3. When the firm receives the share transfer deed and the necessary papers, it will inspect the deed and documentation before passing a resolution in the Board Meeting to accept them. After the Board resolution has been passed, put the name of the transferee as the beneficial owner of such shares in the member’s register. If all of the necessary documents for a share transfer are in place, the board will record the transfer by approving a resolution.
  4. One director can be granted the authority to transfer shares, and he can act as a “one man committee.” The Board can limit the Committee’s powers, such as limiting transfers to a certain amount of shares, say 1,000. Transfers can also be approved by a circular resolution by the Board or a committee.

Powers of transfer should be given to an office, a committee, or a registrar and share transfer agent, who should attend to the job at least once every two weeks, according to the Listing Agreement.

  1. Within one month of the Board Resolution being passed, the Company will issue a share certificate in the transferee’s name. {56(4)(c)}. Behind the Share Certificates, the company will endorse the name of the Transferee.

Other than this procedure, Non-compliance with the procedures set forth in the Companies Act of 2013 does not render a gift of shares illegal.

Procedure to transfer of shares in a public company as per Indian statute:

  1. Both the transferor and the transferee must sign the deed of share transfer in form SH-4.
  2. Stamps must be applied to the share transfer document in accordance with the Indian Stamp Act, and Stamp Duty must be paid in the state in question. The signatures of the transferor and transferee in the deed of transfer must be witnessed by a person stating his signature, name, and address.
  3. The appropriate share certificate or allocation letter must be attached to the share transfer document and presented to the firm.
  4. Within sixty days after the date of execution by or on behalf of the transferor and transferee, the deed of share transfer must be deposited with the corporation.
  5. The board will review the share transfer document after it has been received. If the documentation for a share transfer is in order, the board will record the transfer by approving a resolution.

Conclusion

A public company is defined as a company, and it does not restrict the right to transfer its shares, as specified under Sections 2(68) and 2(71) of the Companies Act, 2013. These sections of the aforementioned legislation have already been announced and come into effect as a result of the Companies Act of 1956’s equivalent provisions. Furthermore, under Section 58(2) of the Act of 2013, a public company’s shares are freely transferable. “Any contract or agreement between two or more individuals in respect of the transfer of securities will be enforced as a contract,” says the proviso to Section 58(2).

References:

  1. Companies Act, 2013
  2. Companies Act, 1956
  3. Companies (Share Capital & Debentures) Rules 2014

Written by: Anamika Singh (2nd Year)

College – NUSRL, Ranchi.

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