Procedure for Share Transfer in Private Limited Company

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Procedure for Share Transfer in Private Limited Company

Do you want to transfer ownership of shares held in a Private Limited company? Here is the procedure. But before describing the procedure, it is worthwhile recalling what is the definition of a Private Limited Company as per the Companies Act 2013.

As per Section 2(68) of the Companies Act 2013, Private companies within its ambit includes those companies whose articles of association

  • Restrict/limit the transferability of shares and
  • Restrict the public from subscribing to them.

This is the core parameter that difference between the listed and unlisted private limited companies from public limited companies.

Features of Private Companies

These are certain distinct traits that distinguish the private companies from other types of companies:

  1. Zero minimum capital required: In the past, there has been a minimum paid-up share capital requirement of Rs 1 lakh, but that provision has been withdrawn now.
  2. Minimum 2 and maximum 200 members: A private limited company can have a minimum of just two members (but just one person is also enough if it is a Person Company and a maximum of up to 200 members.
  3. Transferability of shares has been restricted: Private companies ought not to free to transfer their shares to the public that is in the case of public companies. That is the reason stock exchanges never list private companies.
  4. Private Limited: All private companies must include the words “Pvt. Ltd.” or “Private Limited” in their names.

What is Meant by The Transfer of Shares?

The word ‘transfer’ is an act done by parties by which title to a share(s) is transferred from one person who is called transferor to another person who is called transferee.

Shareholders are the complete owners of the Company and transfer of shares is a transaction that results in a change of ownership. However, The rights of a shareholder to transfer the title of his shares are always subject to provisions in the Articles of Association (AOA) of the company. Once it has been incorporated, it becomes an independent distinct entity, and its shareholders attain the right to hold and Share Transfer Agent.

Following is the procedure or the various steps in Transfer of Shares of Private Limited Company:

  • Step1: Examine the Articles of Association of the Private Limited company in which you possess shares and take into consideration the restrictions/limitations in the AOA if any.
  • Step 2: The shareholder of the private limited company must provide notice in writing to the Director of the Company about his intention of transferring a share(s) of the company.
  • Step 3: The Company shall inform other members about his intention to transfer the share(s).
  • Step 4: The Company shall; thereafter, decide/calculate the price of the shares to be transferred that is usually determined either by the Director or by the Auditor of the Company.
  • Step 5: An instrument of securities that are held in physical form shall be entered in the share transfer deed in Form SH-4.
  • Step 6: The transferor of share(s) shall execute the share transfer deed that shall be duly signed by the Transferor and Transferee. In case of the death of the transferor or the transferee, their legal representatives shall duly sign the aforesaid deed.
  • Step 7: Stamping of the “share transfer deed” as per the Indian Stamp Act and the Stamp Duty Notification
  • Step 8: The signing of the transfer deed by the transferor and transferee has to be done in presence of a witness who has to provide his signature, name, and full permanent address on the aforesaid deed.
  • Step 9: The transferor has to attach the share certificate or allotment letter along with the share transfer deed, and each & every instrument of transfer deed should be delivered to the company within 60 days from the said date of execution of the share deed.
  • Step 10: If all the aforesaid documents are found to be in the order that is prescribed, the board of directors must have to register the transfer by passing a resolution, and this shall be the final transfer of Shares in the Private Limited Company.
  • Step 11: In the last step, the company shall have to deliver the certificates of all the shares that have been transferred within one month of making the application for the registration of transfer of any aforesaid shares.

Can a Company Refuse to Register The Transfer of Shares?

Private Limited Company holds the power of refusal to register the transfer of shares that has to be exercised by the Company within 30 days since the date on which the instrument of transfer(or intimation of transfer) has been sent to the Company by a notice of the refusal along with reasons for aforesaid refusal to the transferor and the transferee.

What Comes Next if A Company Gives Refusal to Register The Transfer of Shares?

  1. If a company
  2. refutes or
  3. Fails in registering or
  4. transfer the shares

Then the transferee can make an appeal to the National Company Law Tribunal (NCLT) within a specified time period

Company Share Transfer: Penalty for Non-Compliance

In case of default in the transfer of share(s) by a company, there is a heavy penalty on the Company that shall be punishable by the fine which shall not be less than Rs 25,000 however which may extend to Rs 5,00,000. So, if you can hire our SAG RTA (Registrar and Share Transfer Agent) that will help to avoid penalty because it managing the complete record of the transactions.

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