Share Transfer

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Share Transfers in Private Limited Companies:

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In the realm of Private Limited Companies in India, ownership is intricately tied to shareholding. The process of inducting new investors or transferring ownership within the company necessitates the transfer of shares. Whether attracting fresh investments or handing over control, the transferability of shares plays a pivotal role in shaping the company’s dynamics.

Shares and debentures, being movable properties, are transferable as stipulated by the articles of the company, particularly in the case of shares of members of a public company. The provisions of the Companies Act are instrumental in governing the transfer and transmission of securities, encompassing scenarios such as death, succession, inheritance, and bankruptcy.

Understanding Share Transfer:

Share transfer involves the voluntary transfer of rights and, potentially, duties of a company member. This shift occurs from a shareholder wishing to cease their membership to an individual willing to assume membership. Importantly, shares in a company are transferable, akin to any other movable property, unless expressly restricted by the company’s Articles.

Procedure for Transferring Shares in a Private Limited Company:

Given the significance of share transfers, certain procedures must be adhered to, especially considering potential restrictions. The following steps outline the process:

  • Obtain Share Transfer Deed: The transfer process commences with obtaining the share transfer deed in the prescribed format.
  • Duly Sign Transfer Deed: Both the transferor and the transferee must duly sign the share transfer deed.
  • Stamp the Deed: Stamp the share transfer deed with the name, address, and signature of the concerned parties.
  • Submit Transfer Document: Attach the transfer document or allocation letter to the share certificate and submit it to the company.
  • Company Processing: The company processes the paperwork, and if accepted, issues a new certificate to the transferor.
  • Transferor’s Request: The transferor formally requests the company to effect the share transfer.
  • Notice to Existing Members: The company issues a notice to existing members informing them of the intention to transfer shares.
  • Non-Interest from Existing Members: If no existing member expresses interest, the company informs the transferor that shares can be sold to a non-member.

Share Transfer Process:

  1. Form SH-4 Submission: The transferor initiates the process by submitting Form SH-4, duly executed, dated, and stamped, to the company. This form contains essential information such as the execution date, CIN of the company, name of the company, class of securities, and details of the transferor and transferee.
  2. Instrument of Transfer Details: The instrument of transfer must include distinctive share numbers, certificate numbers, and details of the transferor and transferee, duly stamped as per the Indian Stamp Act of 1899.
  3. Company Verification: Once submitted, the company verifies the details and, if in order, registers the transfer. A share certificate is then issued and endorsed to the transferee within one month of receiving the instrument of transfer.

In conclusion, share transfer in Private Limited Companies involves a meticulous process that ensures a smooth transition of ownership. By following the procedures outlined in the Companies Act and Rules, companies can facilitate seamless share transfers, contributing to the fluidity of ownership dynamics within the business landscape.