Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as represented in a share of the company) from a shareholder who wishes to not be a member in the company any more to a person who wishes of becoming a member. Thus, shares in a company are transferable like any other movable property in the absence of any expressed restrictions under the articles of the company.
Restriction on transfer
Transferability of shares in a privately held company is governed by the Articles which is a document that lays down the rules and regulations regarding share capital transfer, transmission, board of directors, general meetings and winding up, among others.
Section 2(68) of the Companies Act 2013 provides that the Articles of a private company shall restrict the right to transfer the company’s shares.
- Step 1: Review the AOA: Articles of Association of the Private Limited Company must be reviewed and restrictions, if any must be addressed.
- Step 2: Shareholder must give notice in writing to the Director of the Company about intention to transfer share of the company.
- Step 3: Determine the price as per Articles of Association at which the shares of the Company will first be offered to present shareholders of the Company. (Usually this price is determined by the Directors of the Company or an Auditor of the Company.)
- Step 4: The company must then give notice to the other shareholders about the availability of share, the last date to purchase the shares and the price at which the share are available.
How to Transfer Shares of a Private Limited Company
To effect the share transfer, the following steps must be followed:
- Step 1: Obtain share transfer deed in the prescribed format.
- Step 2: Execute the share transfer deed duly signed by the Transferor and Transferee.
- Step 3: Stamp the share transfer deed as per the Indian Stamp Act and Stamp Duty Notification in force in the State.
- Step 4: Have a witness sign the share transfer deed with his/her signature, name and address.
- Step 5: Attach the share certificate or allotment letter with the transfer deed and deliver the same to the Company.
- Step 6: The company must process the documents and if approved, issue new share certificate in the name of the transferee.