In a private limited company, The shareholding pattern decides the ownership of an individual in the company. The private limited company interest can be sold to
- attract new investors or
- to pass control of the company.
Here, In this article, we shall look at the mechanism of how shares of a private limited company can be transferred. Importance of the Articles of Association
In a private limited company, when a shareholder desires to sell his shares, the shares must first be sold to the
To the individual who is a member of a registered private limited partnership at a price
- Agreed by either the directors
- Or the Partnership Auditor
The share value can be calculated by the method mentioned in the Articles of the Association. If there is no current shareholder of a company, the company’s shares can be openly transferred to an outsider.
If provided in the articles of association, the manager may have the authority to reject under specific circumstances the registration of transfer of shares.
“The shareholders’ right to move shares is typically limited in two forms:”
“Pre-emption rights: When a shareholder wishes to sell any or all of his securities, the securities must first be sold to the individual registered private limited partnership members at a price agreed by either the directors or the partnership auditor. The share value can be determined based on the formula/method stated in the Articles of Association. In the absence of any current shareholder, the company’s shares can be openly transferred to an outside group.”
Directors’ powers to deny: the Manager may have the authority to deny, under some conditions, the registration of the transfer of securities, provided for in the Articles of Association.
Only the restrictions mentioned in the articles of association are legally binding. Any private understanding between the shareholders is not binding on the company or shareholders both. Therefore only articles of association can limit or approve the transfer of shares.
Initiation of Share Transfer Procedure
The following steps must be followed to initiate the share transfer procedure:
Step 1: The Articles of Association of the company must be checked and then the limitations of the Articles of Association must be discussed
Step 2: The shareholder will intimate and provide the Company’s Manager a written notice of the intention to move the company’s share.
Step 3: The price of shares shall be determined as per the procedure mentioned in the Articles of Association, wherein the company’s shares shall be sold first to its current shareholders. Usually, This price is determined by the Company’s Directors or by the Company’s Auditor.
Step 4: The company shall then inform the other shareholders of the availability of shares and the final date of purchase of the shares.
Step 5: Receive the SH-4 Share Transfer act that is duly executed by both the transferors and transferees.
Step 6: The transfer certificate will bear stamps in compliance with the Stamp Act.
Step 7: An individual who gives his or her signature, name, and address must accompany the witness to the signatures of the transferor and the transferor of a share transfer deed.
Step 8: A modification in the corresponding share certificate or allocation letter to the share transfer deed must be made and forwarded to the company.
Step 9: The Board will take into consideration the same after obtaining the Share Transfer Agent deed. If everything complies with the law, the Board shall register the transfer by resolution.
Mechanism of Transferring Shares of a Private Limited Company
The following steps must be undertaken for the purpose of share transfer of a Private Limited Company:
Step 1: Obtain the share transfer deed as required.
Step 2: Thereafter Execution of the transfer of shares that are duly signed by the Transferor and Transferee.
Step 3: Stamp the required documents i.e. share transfer deed while complying with Indian Stamp Act and the State Stamp Duty Notice.
Step 4: Must bear a witness register with his / her signature, name, and address of the transfer deed.
Step 5: Must attach the transfer document to the share certificate and send it to the address of the company.
Step 6: Finally, The company shall do the processing of the paperwork, and then the transferor shall grant (if accepted) a new share certificate.
Know More About of Time Limits
Businesses Having Share Capital: The Private Company with shares shall, within 60 days of its execution, not be registering any Transfer and Transmission of Shares for the Company or any ownership interest in it except beneficial owners
Application by The Transferor Alone: The transfer shall not be registered until and until the company notifies the transferor and the transferor within 2 weeks of receipt of the notice.
No Opposition Certificate: In the below-mentioned situations and as per the subsequent time limits, the company shall issue certificates to all shares that are allocated/transferred/transmitted:-
A. For memorandum subscribers — Within 2 months of the date of incorporation.
B. In case of allocating all of the shares — Within 2 months of the allocation date,
C. Delivery of the Transfer/Intimation — Transmission Instrument shall be delivered by the client within 1 month from the delivery date.
D. Allocation of debenture — Within 6 months of the date of allocation.
Find Out Minimum Penalty and Maximum Penalty
In the specific case of an officer in practice, the minimum penalty is Rs. 25.000, and the maximum penalty is Rs. 5,00,000; and finally, the average is Rs.1,00,000.
Something to Look for in a Transfer Agent
The basic requirement of any company is that the Registrar and Transfer Agent should reply as quickly as possible and treat shareholders with respect.
“Keeping a Registrar & Transfer Agent Services provider is necessary as well as a complicated task but before diving into complexity make sure that the Registrar & Share Transfer Agent is availed from SEBI. Securities and Exchange Board of India (SEBI) is the regulator of the Capital (securities and commodity) market in India and it is owned by the Government of India. If you are looking for one reputed RTA Service. SAG RTA (Registrar and Transfer Agent) is a leading RTA Services provider and we are accredited by SEBI. “