What is a Share Transfer? And Share Transfer Procedure in Private Limited Company
In a Private Limited Company, share transfer plays a crucial role in determining ownership and facilitating the introduction of new investors. This article provides a detailed overview of the process of transferring shares in a Private Limited Company. We will explore the concept of share transfer, its benefits, the restrictions imposed by the Articles of Association (AOA), and the step-by-step procedure involved in transferring shares.
A private limited company can be registered by a minimum of two people. A person can be both a director and a shareholder. The liability of the members of a Pvt. Ltd. company is limited to the number of shares held by them. Register Pvt Ltd company in India with Ebizfiling.
What is a Share Transfer?
Share transfer refers to the voluntary transfer of ownership of shares from one party to another. While shares in a business are generally freely transferable, the Articles of Association may impose certain restrictions on the transfer of shares in a Private Limited Company.
Benefits of Share Transfer:
Investing in equity shares and transferring ownership offers several advantages, including:
1. Capital appreciation and pay entitlement
2. Limited responsibility
3. Rights to shares, liquidity, and bonus shares
4. Stake in profits and assets
5. Opportunities to work with new private equity investors
6. Potential tax benefits
Restrictions on Share Transfer Imposed by AOA:
Under specific circumstances outlined in the Articles of Association, directors may have the authority to refuse the registration of a share transfer. If a shareholder wishes to sell their shares, the director or the company’s auditor may offer the shares to existing members of the Private Limited Company at a price determined by them. Failure to comply with this condition can result in a hold on the share transfer process. The Articles of Association may specify alternative methodologies for valuing the shares. If no existing shareholders express interest, the company’s shares can be freely transferred to a third party.
Procedure for Share Transfer in a Private Limited Company:
The following steps outline the process of transferring shares from an existing shareholder to a new shareholder:
1. Notification by the Transferor:
The transferor must send a written notice to the corporation expressing their intention to transfer shares.
2. Board Resolution:
The corporation reviews the transferor’s notice through a board resolution.
3. Offer to Current Shareholders:
The corporation provides an offer letter to current shareholders, presenting the availability of shares, the deadline for purchase, and the price at which they are available.
4. Objection Letter:
Current shareholders have the option to submit a written objection letter if they do not wish to purchase the offered shares.
5. Share Transfer Agreement and Stamp Duty:
The share transfer agreement (SH-4) is prepared and stamped as per the Indian Stamp Act and State’s Stamp Duty Notification. Stamp duty is paid accordingly.
6. Share Certificates:
The share transfer deed, signed by both the transferor and the transferee, is submitted to the company along with the share certificate or allotment letter.
7. Review and Issuance:
The corporation reviews the documentation and, if approved, issues a new share certificate in the name of the transferee.
Steps involved in initiating Share Transfer Procedure
- The Private Limited Company’s Articles of Association must be evaluated, and any restrictions must be rectified.
- The intention to transfer a share of the company must be communicated to the Company’s Director in writing.
- Establish the price according to the company’s articles of incorporation, where the company’s shares are sold first to its current shareholders.
- The corporation must then notify the other shareholders of the availability of shares, as well as the deadline for purchasing them and the price at which they are available.
The process to Transfer Shares of Private Limited Company
- Obtain a share transfer deed that follows the guidelines.
- Complete the share transfer deed by having both the Transferor and the Transferee sign it.
- Stamp the share transfer deed in accordance with the Indian Stamp Act and the State’s Stamp Duty Notification.
- Have a witness sign the share transfer deed with his or her name, address, and signature.
- Deliver the transfer deed to the Company together with the share certificate or allotment letter.
- The corporation must review the paperwork and, if they are authorized, issue a new share certificate in the transferee’s name.
Conclusion:
Only when the transfer is registered by the corporation the share transfer procedure will be completed. The corporation must transmit the share certificate to the transferee within one month of registration. The transferability of shares in a private limited company is completely done by following the norms made in AOA while shareholders in a public limited company can readily and freely transfer their shares.
