Introduction

  • The transfer of shares denotes a voluntary handing over the rights and duties of a person who represents a share of the company from the shareholder who is not willing to be a member anymore to the person who is willing.
  • These shares are transferable like a movable property if there is no expressed barrier under the Company.
  • Generally, the company’s securities are free to be transferred apart from certain barriers and challenges applicable to the transfer of shares of the Private Limited Company in their articles.
  • The restrictions shall also protect the interest of shareholders and other security holders.

Criteria for Transfer

  • The Companies Act, 2013 prescribes the procedure for the transfer of shares by public and private companies.
  • According to Section 138 of the Companies Act, 2013, a company will register the transfer of shares and other securities only upon successfully filing of share transfer form i.e. Form No.SH 4.
  • The form shall be duly stamped with adequate value executed on the behalf of the transferor and transferee. One of the main concerns for the Securities of a Company is its transferability.
  •  Section 44 of Companies Act 2013, states that shares and debentures or some other interest of the member of a company are considered as movable property and can be transferable in the manner as prescribed by the companies Article of Association.
  • The Form SH-4 shall be submitted by the transferee or transferor to the company within the period of sixty days from the date of filing of the form.
  • The share transfer agreement shall also include a share transfer certificate or any other certificate relating to securities.
  •  In the absence of a share transfer certificate, the application for transfer of a share shall be sent along with the letter of allotment of securities.

Exception

  • In the following cases, a company shall not register a transfer of paid shares:
  • If the notice has been sent to the transferee in Form No. SH-5  and
  • If the transferee has served NOC (no objection certificate) to transfer within 2 weeks from the date he has received the notice from the Company.

Restriction for transfer of share

  • For the transfer of a share, we need to follow a certain procedure when restrictions are imposed
  • The restriction is said to be imposed when shares cannot be transferred directly to another non-member of the company.
  • Along with the restriction for private companies under the Companies Act, 2013 regarding the transfer of shares, so in order to transfer the share of the member, the request shall be made to the company.
  •  The request shall show the willingness of the member to transfer his shares to the existing members of the company.
  • On receiving the notice of intention for the transfer then it shall be discussed in a Board meeting and notice shall be sent to the entire existing member regarding the purchase of a share.
  • A letter shall be sent to the person who is selling his shares if no existing person is ready to buy his shares. Now he can also sell his share to the non-existing member.
  • The share transfer deed shall be submitted that is duly executed to the Company by the shareholder who wants to transfer his share.
  • After receiving the Share Transfer deed and Share Certificate Company shall pass a Board Resolution and register the entity for transfer of the share.

Documents required for transfer of share

  • The transferor shall give the notice to the Company
  • Board Resolution for considering the notice sent by the Transferor to the Company
  • Letter of offer established by the Company for the existing shareholder.
  • The existing shareholders shall give a dissent letter to the Company
  • Form SH-4 with Share Transfer Deed along with paid Stamp duty
  • Certificate of Share
  • Board Resolution for the registration of transfer of shares.

Time limitation for Share transfer

  • Share Capital of the Company- the Company shall register the transfer of securities of beneficial owners with the proper instrument of transfer is not more than sixty days from the date of execution.
  • Application by the transferor- the transfer shall be registered once the Company sends the application notice to the transferee and in return, a No Objection Certificate is issued by the transferor within two weeks on receiving notice.
  • The Company shall issue certificates of all allotted securities and transfer in the following time limits:
  • In case of Memorandum to subscribers- the certificate shall be issued within two months from the date of incorporation.
  • In terms of allotment of any share, the certificate shall be sent within two months from the allotment date.
  • The receipt of the Instrument of transfer by the Company shall be issued within one month from the receipt date.
  •  In the last case of debenture allotment, the certificate shall be issued within six months from the date of allotment.

Consequences for Non-Compliance

Under the Company law, if there is non-compliance of the norms and provision on the behalf of Company in terms of transfer of shares, the Company shall be punishable with fine not less than Twenty Five Thousand rupees that may extend to Five Lakh Rupees. An officer who is at default shall be punishable with fine not less than Ten Thousand Rupees that may extend to One Lakh Rupees.

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