Process and Documents Related to Transfer of Physical Shares of a Private Company
Before we move on to the Transfer of Shares of Private Limited Company, let us first understand the meaning of shares.
A share is a unit of capital which can not be divided further and expresses the ownership relationship among the company and the shareholder. The denominated value of a share is known as its face value, and the sum of the face value of shares issued indicates the company’s capital.
Shares are moveable units of ownership interest in a company which means they can be transferred from one individual to another.
Transfer of Shares
Transfer of shares signifies the voluntary transfer of the ownership title of shares from one party to another.
In general, a company’s shares are freely transferable, however, there can be some rules & restrictions governing the Transfer of shares of the private company as prescribed in the articles or as per the provisions of Section 56 of the Companies Act 2013.
Shares can not be transferred by the company unless a tangible and duly stamped instrument of Transfer in Form No. SH-4 is executed by or on behalf of the Transferor and the Transferee.
The Indian Stamp Act, 1899 prescribes the stamp duty to be paid on transfer of shares, however, Section 11 of the Finance Act, 2019 (7 of 2019) has amended the Stamp Duty payment on Transfer of shares.
Central Government announced 09th January 2020 as the date which will mark the effectiveness of Part 1 of Chapter IV of the mentioned Act.
Process of Shares Transfer for a Private Company
1. Request by the transferor to the company for the transfer of his shares.
2. Issuance of notice by the company to all the current members of the company showcasing the intention of the transferor to transfer his shares.
3. In case, no member shows interest in buying the respective shares, the company gives approval to the transferor for selling his shares to the non-member.
The transferor follows the below-given procedure to transfer the shares:
4. FORM SH-4: FORM SH-4 is the most crucial instrument of Transfer which initiate the process for the same. The Transferor has to submit a properly executed and stamped Form SH-4 to the Company. The Instrument of Transfer must be stamped as per the Indian Stamp Act,1899.
Form SH-4 encompasses various details which are as follows:-
- Date of Execution
- Company’s CIN
- Company’s name
- Class of Securities
- Amount called up/Nominal Value/Amount paid up of Securities, Securities to be transferred at a consideration of INR ...Certificate No., Distinctive No. of shares
- Transferor’s name, Folio No. and Signature
- Transferee’s name and details such as Folio, Fathers Name, Address, Email Id, Occupation and Signature.
5. Submission of FORM SH-4 by the company is followed by its registration and issuance of the endorsed share certificate to the Transferee within a time-frame of one month of receipt of this instrument.
Some additional documents are also executed by the parties to record the transfer of shares and to protect their own interests. These documents are as follows:
1. Board Resolution or Take Note Transfer of shares
Board resolution is passed for agreeing with & carrying out the Transfer of shares and documenting it in the register of Transfer.
2. Share Transfer Agreement
Share Transfer Agreement is an agreement which is executed between the Transferee and the Transferor of shares approving the Transfer of shares. The agreement encompasses the details about the Shares Transferred, Payment mode and so on.
Stamp Paper must be attached with this agreement and amount of Stamp paper should be in accordance to the Indian Stamp Act, 1899.
A receipt is evidence signed by the Transferor that the entire payment of consideration has been made by the Transferee.
4. Sale Bill
Sale Bill is a document which reflects the price at which the shares are transferred. This document is signed by both the parties i.e. the transferor and the transferee.
Points to ponder:-
- According to Chapter 4 (Companies (Share Capital and Debenture) Rules, 2014, Rule 11 the FORM SH-4 should be delivered within the period of 60 days from the date when the transfer is executed.
- Provisions of Section 56 of Companies Act,2013 states that in case of the non-delivery of the said Instrument of Transfer within the specified time, the company may register the transfer on such terms as to indemnity as the Board may think relevant.
- According to Chapter 4 (Companies(Share Capital and Debenture) Rules, 2014, Rule 11, a transfer of partly paid-up shares shall not be registered by the company unless a notice in Form SH-5 is issued to the Transferee and a No Objection is provided by the Transferee to the Transferor within 2 weeks from the date when notice is received.
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