Procedure for Transfer of Shares

It plays a critical role in the identity of the company. The Procedure for Transfer of shares is done by the shareholders of the company on a regular basis. The Companies Act 2013 lays down the provisions related to the transfer and transmission of shares.

What is the procedure for transfer of shares?

The procedure for transfer of shares are:

Inform the company:

The transferors and the transferee shall be required to inform the company of the procedure for transfer of shares.

Execute an instrument:

Both the transferor and transfree shall be required to execute an instrument in form SH-4 along with stamp duty. The transfer instrument in form number SH-4 shall be signed by both the transferor and transferee, and it should be given to the company within 60 days from the date of execution instrument.

Check the AOA of the company:

Company should check Articles (AoA) whether Article of Association is authorized for Transfer of share .

Board Resolution:

Board resolution for registration of the transfer of shares.

Issue Share Certificate:

The company shall issue a share certificate within 1 month of receipt of SH-4 to the transfree.

Meaning of transfer of share:

Transfer of share means transfer of share from one shareholder to another shareholder under the provisions of Section 56 of the Companies Act 2013. In the transfer of shares, the transferor and transferee shall be required to execute SH-4.

Procedure of transmission of shares:

Transmission of shares arises in cases of death, insolvency, lunacy, or inheritance. Share, share transmission shall arise when a company is wound up and the company is the shareholder.

Transfer and transmission of shares by operation of law:

In the event of death, the share will be transferred to his legal representative, and in the event of insolvency, it will be transferred to the assignee.

Legal Provision:

As per Section 56,58 of the Companies Act, 2013, read with Rule 11 of the Companies (Share Capital & Debenture) Rules, 2014.

The company can refuse the procedure for transfer of shares in the below cases:

• If partly paid-up shares are transferred and the transferee is well aware of the financial situation for paying call money,
• If partly paid-up shares are transferred to a minor not able to enter into contract,
• In this case, money is due but not paid by the transferor.
• When the transferor is a debtor of the Company and the Company has lien on such shares of the company.
• If the instrument in Form number SH-4 is incomplete, irregular, defective, or not properly stamped, it is a violation of the provisions of the Companies Act 2013.

In which situation can the company refuse the procedure for transfer of shares?

When the company rejects the transfer, within 30 days of receiving the form SH-4, it shall send a refusal notice to both the transferor and transferee.

• The transferee can file an appeal with the National Company Law Tribunal (NCLT) within 30 days from the date of receipt of the refusal notice in the case of a private company share transfer procedure and 60 days in the case of a public company from receipt of the refusal notice.
• If the Company does not send a refusal notice, then the transfree can appeal to NCLT within 60 days of the delivery of SH-4 in the case of a private limited company share transfer procedure, and in the case of a public company, an appeal can be filed within 90 days of the delivery of SH-4.
• NCLT, after hearing both parties (transferor or transfree), will either reject the appeal or order the company to register such a transfer within 10 days of such an order.

Restriction on the share transfer process:

The major difference between private companies and public companies is the transferability of shares. In the case of a public company, the shareholder can transfer his shares freely. But when it comes to private companies, shareholders cannot transfer their shares.

According to Section 2(42) of the Companies Act 2013, “private company” means a company that, by its articles, restricts the right to transfer its shares; except in the case of a one-person company, the total number of members shall not exceed 200 and prohibits any invitation to the public to subscribe to any securities of the company.

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