Difference Between Share Transfer and Share Allotment

Last Updated on March 9, 2026

In corporate practice, one of the most common dealings of companies is the issuance or transfer of shares. Share allotment and share transfer are two terms used regularly in this context. Despite both being connected to the rights to the company’s shares, they are two completely different legal procedures.

The distinction between share transfer and share allotment is very significant for shareholders, directors, and investors to ensure that the provisions of the Companies Act, 2013 and corporate governance practices are met.

What is Share Allotment?

Share allotment is the process by which an organisation issues new shares to applicants or investors. It usually occurs when a firm is incorporated or when it raises additional capital.

Simply stated, share allotment is the process by which a company issues shares to an individual whose share application has been accepted.

In case of the incorporation of a new company and promoters subscribe to shares in the Memorandum of Association, the company allots such shares.

Key Characteristics of Share Allotment

• It introduces new company shares.
• It boosts the amount of paid-up share capital of the company.
• The Board of Directors makes the allotment decision.
• It involves making pertinent forms before the Registrar of Companies.

In Section 39 of the Companies Act, 2013, shares are allotted only following the application money and under the statutory requirements.

What is Share Transfer?

A transfer of shares is the voluntary transfer of ownership of existing shares to another individual.

The company does not issue new shares, as it would in the case of share allotment. Rather, a current shareholder sells its stock to a different individual through a legal procedure.

This happens to be normal with the case of owning a company privately, either when the investors pull out or ownership is transferred among the partners.

Key Characteristics of Share Transfer

• It is not a new issue of shares.
• The company’s share capital remains the same.
• It involves executing a deed of transfer of shares.
• The transfer has to be endorsed by the company board.

Section 56 of the Companies Act, 2013 regulates the transfer of shares and spells out the legal factors in relation to the transfer of securities.

Share Transfer vs Share Allotment

Even though they are both associated with company shares, they differ in several ways.

Aspect	Share Transfer	Share Allotment
Nature of Shares	A share transfer is a deal between two parties. The shares are issued and already exist and thus form part of the company’s current share capital.	Share allotment involves the company creating and issuing fresh shares to investors or shareholders. In this process, new shares are added to the company’s total share capital.
Parties Involved	The transaction happens between two persons or entities- the transferor (current shareholder) and the transferee (new shareholder).The company itself does play a limited role in the process.	Share allotment happens directly between the company and the investor or shareholder. The company offers the shares, and investors subscribe to them by paying a certain price.
Purpose	The purpose of a share transfer is to enable an existing shareholder to exit the company, sell their holdings, or transfer shares for personal or financial reasons.It does not impact the company’s overall capital structure.	Share allotment is primarily aimed at raising capital for the company, rewarding existing shareholders, or bringing in new investors. It is an effective tool that companies employ to raise funds for their expansion, development, or other operational needs.
Impact on Capital	Share transfer has no impact on the company’s share capital. The total number of shares remains the same. Only the ownership of the shares changes hands.	Share allotment increases the company’s share capital. However, this process can dilute the ownership percentage of existing shareholders.
Legal Framework	The share transfer is regulated under Section 56 of the Companies Act 2013.Further, the company’s AOA may impose certain restrictions in private companies, where transfers need board approval. In public companies, shares are generally freely transferable unless restricted by law.	Share allotment is governed under Sections 42 (Private Placement) and 62 (Rights Issue) of the Companies Act, 2013.The company must comply with detailed rules regarding board approval, statutory filings, and disclosures.
Stamp Duty	Stamp duty is applicable to the consideration value of the shares being transferred.The transfer deed must be duly stamped as per the Indian Stamp Act, and failure to do so makes the transaction invalid.	Stamp duty on share allotment is calculated on the face value of the newly issued shares.Since it involves fresh issuance, the rate of stamp duty is lower than that of share transfer transactions.
Approval Requirement	In the case of private companies, the transfer of shares needs approval from the Board of Directors.Public companies have fewer restrictions, and shares are freely traded on stock exchanges.	Share allotment always requires the approval of the Board of Directors.The company must also file Form PAS-3 with the Registrar of Companies (ROC) within 30 days of the allotment.
Document Used	The document required for share transfer is the Share Transfer Deed (Form SH-4).Proper stamping and signing by both parties are mandatory.	Share allotment requires the investor to submit an Application for Allotment to the company.The company issues share certificates after the allotment is approved and updates the Register of Members.

Process of Share Allotment

The share allotment process normally consists of the following steps:

• Application received in relation to shares.
• Board meeting to endorse allotment.
• Allotment of letters to the applicants.
• Submission of the required forms to the Registrar of Companies.
• Distributing share certificates to shareholders.

The companies have to do this according to the time limits stipulated in the corporate law.

Process of Share Transfer

The process of share transfer normally involves:

• Implementation of a deed of share transfer (Form SH-4).
• Laying of stamp duty where necessary.
• Presentation of transfer paperwork to the company.
• Board of Directors Approval.
• Making an update to the register of members and issuing new share certificates.

Private limited companies may impose restrictions on share transfer through their Articles of Association.

Practical Example

Take the example of a start-up company that issues 10,000 shares to investors when incorporating the company. This is one of the forms of share allotment where the company is issuing new shares.

A later investment will sell 1,000 shares to someone. This is referred to as a share transfer, since the shares are already in existence, and ownership is only being transferred.

Importance for Companies and Investors

Knowledge of the distinction between share transfer and share allotment enables businesses to uphold good corporate governance.

In the case of companies, it makes sure that they are in accordance with the statutory provisions and that shareholder books are properly maintained. To investors, it explains the change of ownership and the process of raising capital.

The improper management of these processes can result in penalties to the regulatory authority, conflicts among shareholders, or the nullification of transactions.

Conclusion

Share transfer and share allotment are two important procedures in India’s corporate sector. Share transfer refers to the transfer of existing shares among shareholders. Share allotment refers to the process of issuing new shares to raise funds or attract new investors.

Businesses and investors need to be familiar with these concepts because the capital structure of a company is governed by them, and hence, such transactions must comply with Indian law for transparency and compliance.

Recognising these nuances helps businesses manage ownership structures effectively while investors navigate opportunities with greater clarity and confidence. Both processes are vital for business development and investor participation in India’s dynamic corporate environment.

Frequently Asked Questions (FAQs)

1. What is the share transfer and share allotment difference?

Share allotment is the issuance of new shares to investors or applicants by a company, thereby increasing the company’s share capital. Share transfer can be defined as the transfer of old shares by one shareholder to another. In a share transfer, there is a change in ownership, though the entire amount of share capital in the company remains unchanged.

2. Does allotment of shares raise share capital?

Yes, allotment of shares makes the share capital of a company high in that fresh shares are given to investors. In the case of allotment of shares, the company gets capital in place of ownership rights bestowed upon the shareholders.

3. What part of the Companies Act regulates the share transfer?

Section 56 of the Companies Act, 2013, controls share transfer in India. This section provides the means of transferring securities, such as the performance of transfer deeds, submission of documentation and registration of the transfer in the register of the members of the company.

4. Is it possible to limit the transfer of shares by a limited company?

Yes, the articles of association can be used by private limited companies to restrict the transfer of shares. Some of the restrictions that are usually imposed are the right of first refusal to existing shareholders before the transfer of shares to any outside buyer can be made.

5. Who sanctions share allotment in the company?

The Board of Directors of the company grants share allotment. The board examines applications for shares and makes a resolution to distribute shares to all applicants of the company based on its capital structure and legal provisions.