Share Transfer

Share transfer in a private limited company is a systematic procedure designed to enable the transfer of ownership rights from one individual to another. Shares signify a stake in the ownership of the company and can be sold, bought or transferred based on the requirements of the shareholders. Share transfer is governed by the provisions of the Companies Act of 2013, along with the rules and guidelines prescribed by the MCA, ensuring compliance and transparency in such transactions.

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Overview of Company Share Transfer

A company is a separate legal entity that is formed by the individual or group of individuals engaged in the commercial activity. In India, a company can be either a private company or a public company, and it is governed by the Companies Act 2013. Companies are not only essential for the growth of the business but also play an important role in the Indian economy. Whether it is small organizations or large enterprises, companies often need a mechanism to raise capital, distribute ownership, and attract investors to outgrow their business. One of the most preferred ways to achieve the goal is to issue shares. Shares are the small units of ownership in the company that represent a stake in the company and allow the businesses to raise capital. Issuing shares helps expand the business operations.

A share represents the ownership of an individual’s stake or equity in that company. The individuals or enterprises who own the shares of the company are known as the shareholders. Here are certain rights associated with the number of shares held. In India, shares of the company are regulated by the Companies Act, 2013, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the Stock Exchange, and the Registrar of Companies (RoC).

Shares of the company have financial value that fluctuates on the basis of the performance and market conditions of the company. For example, In 1977, the cost of each share was Rs. 10. Now, it costs more than Rs. 2,500. When we talk about share transfer, it is the process by which an individual, known as the transferor, transfers their shares to another individual or entity, known as the transferee, within a company. Shares can be transferred either voluntarily—when a shareholder decides to sell or transfer their shares—or due to specific conditions such as inheritance or restructuring of the company.

Types of Share Transfer in India

In India, the process of regulating share transfer changes depending on the type of company. The rules are different for private companies, public companies, as well as for unlisted companies.

1. Private Company Share Transfer

The process of transferring shares in private companies is stricter than that of public companies.

Private companies have rules in their Articles of Association (AoA) that often restrict the transfer of shares. If one shareholder wants to sell their shares, they might need approval from the Board of Directors or even other shareholders.
A lot of private companies allows pre-emption rights to the shareholders i.e. the existing shareholder(s) of the company are given the first right to buy shares that another shareholder(s) intends to sell. The provision makes sure that the control of the company remains within the selected group.

2. Public Company Share Transfer

The process of transferring shares in the public company is easier as compared to the private company. The share transfer in the public company is regulated in the presence of National Stock Exchange (NSE) and Bombay Stock Exchanges (BSE).

Shares in the public companies are transferred easily. The shares can be transferred through stock exchange without prior approval from the Board of Directors and shareholders of the company.
Public companies are listed on stock exchanges are regulated by the Securities and Exchange Board of India (SEBI) and the shares of company are easily transferred electronically through the Demat Account.
It is easy to sell shares in a public company. One can place a sell order through a stock broker on the exchange portal. The buyer then easily receives the shares electronically in the Demat Account.

3. Transfer of Unlisted Shares

Unlisted companies are those companies that are not listed on any stock exchange and the process of transferring share is more like a manual process. Shares are transferred through a private agreement between the transferor and the transferee with prior approval from the Directors.

Who is Eligible to Transfer Shares in a Private Company?

As mentioned above, the process of transferring shares in a private company is complex and requires strict compliance. In order to transfer the share, the first requirement is to check the eligibility.

The transferor, i.e., the shareholder who intends to transfer shares, must have held the shares in their own name.
The transfer of the share has to comply with the Articles of Association (AoA) of the company.
The transferor and the transferee must be legally competent to sell and buy shares that they must be above the age of 18 years. If the transferor or the transferee are minor or under any form of mental incapacity, they cannot legally sell or accept the shares.
In case of death of death of the shareholder, the executor or the legal representative can transfer the shares on the behalf of the shareholder. It is pertinent to note that the transfer is subject to the provisions of the Article of Association of the Company.
In case of insolvency of the shareholder, the transfer of share is subject to the prior approval of creditors or liquidators.

Documents Required for Share Transfer in India

Share Transfer Deed (Form SH-4)
Original Share Certificate(s)
Proof of Identity of the Transferor and Transferee like PAN card, Aadhaar, Passport
Proof of Address of the Transferor and Transferee, like utility bill, bank statement
Board Resolution of Transfer Approval
Proof of payment of stamp duty

Process of Share Transfer in a Private Limited Company

There are several steps that need to be followed in order to transfer shares in a private company and it is as follows:

Step 1. Agreement between the Parties

The foremost step to transferring shares in a private company is to enter into an agreement. Both the transferor and the transferee have to execute an agreement that has the following key aspects:

Number of Shares being transferred
The agreed price per share and the total consideration paid or to be paid for the shares being transferred.
Condition and mode of payment, including a timeline for the payment of transfer of shares.

Step 2. Execute Share Transfer Deed (Form SH-4)

Once the terms of the agreement are agreed upon, the next step is to execute the Share Transfer Deed (Form SH-4). It is a legal document that keeps a record of all the details of the transfer of shares, the number of shares, and the price of shares. The form includes:

All the details of the transferor and the transferee
Number of shares and the prices at which it is being transferred
Signatures of both parties
Date of transfer
Sign of witness to verify the signature of both parties

Step 3. Pay the Stamp Duty

Every share transfer deed needs to be duty stamped. The stamp duty on share transfer deed is mostly 0.25% of the value of unlisted shares and 0.015% for listed shares it is pertinent to note that that stamp duty is regulated by Indian Stamp Act, 1800 and the transfer deed is not considered valid unless sufficient and correct stamp duty is paid.

Step 4: Submit the Documents to the Company

Once the Share Transfer Deed is executed, the next step is to submit the documents to the company. The following documents need to be submitted to the company to complete the transfer process:

Signed Share Transfer Deed (Form SH-4)
Stamp Duty Payment
Original Share Certificate
Proof of Identity of the transferor and the transferee like PAN Card, Aadhar Card
Board Resolution
Indemnity Bond (if applicable)

Step 5: Approval of the Board of Directors

Once all the documents are submitted to the company, the next step is to get approval from the board of directors. The board shall review the documents and ensure that the transfer is within the Company's AoA. The resolution shall be passed by the Board of Directors to approve the transfer, and the decision to transfer shall be recorded in the Board Minutes. If the Board of Directors do not approve the transfer, then the transfer shall be considered void, and the company will return all the documents to the transferor and transferee explaining the reasons for refusal.

Step 6: Update the Register of Shareholders

After receiving the approval from the Board pf Directors to transfer the shares the next step is to update the shareholder register and issue new share certificate to the transferee and the original share certificate held by the transferor shall be cancelled.

Time Limit for Processing for Share Transfer

Section 56 of the Companies Act 2013 mandates that the company has 60 days to complete the share transfer process after receiving all the necessary documents. If the shares are not transferred within the prescribed time, the transfer of shares after the time shall be considered invalid, and a penalty shall be imposed on the company under the Companies Act 2013 for non-compliance with the law.

Penalties for Incorrect Share Transfer

Penalties for incorrect share transfer are imposed to protect the integrity of the business along with the shareholder rights. By enforcing the penalties, the law ensures the prevention of market manipulation and company & investors from fraud. Following are the penalties that are imposed in case of an invalid share transfer

Non-Compliance with the Stamp Duty

When proper stamp duty is not paid or it is underpaid, the transfer deed of the share shall be considered.
Section 29 of the Indian Stamp Act, 1899 specifically says that if the appropriate stamp duty is not paid then the document may be impounded by authorities.
The company shall reject the transfer if the stamp duty is not paid.
The transferor and the transferee shall be liable to pay the stamp duty payment along with the penalties imposed by the authorities.

Penalty for Delay in Processing

If the company does not complete the transfer process of the shares within 60 days then penalty of ₹500 per day for each day of delay, with a maximum penalty of ₹1,00,000 shall be imposed on the company.

Fraudulent Share Transfer

If the share are transferred on the basis of fraudulent documents, misrepresentation or any other deceptive manner for example forged signatures or incorrect details then the transfer shall be considered void.
The parties involved in such transfer shall be imprisoned for up to 5 years, along with a fine.
The parties shall also be liable to pay damages caused by fraudulent activity.

Role of Professionals in the Share Transfer Process

The share transfer process, especially in private companies, can be tough and legally complex. Professionals such as company secretaries, chartered accountants, and legal advisors play an important to ensure that that the transfer adheres to all legal and procedural requirements. They guide both transferors and transferees through each step to make sure that each step is strictly followed. Professionals help mitigate the risk of errors, penalties, or disputes, ensuring a smooth and compliant transfer process.

Why Choose Kanakkupillai for Your Share Transfer Needs?

At Kanakkupillai, we know that the share transfer process can be tricky, especially for private companies. That's why our team is here to make it easier for you. From drafting the Share Transfer Deed (Form SH-4) to getting the necessary board approvals, we take care of all the details. We also make sure you stay compliant with the Companies Act 2013 and handle everything from stamp duty payments to providing clear guidance on the required documents.

We believe every business is unique, so we offer services that are tailored to your specific needs. Whether you're the one transferring shares or receiving them, we help make the whole process smooth and straightforward. You can count on us for expert advice, transparent pricing, and timely processing—so you can focus on what really matters.

Our dedicated team of professionals keep up with the latest changes in laws and regulations, ensuring your business stays fully compliant. Our goal is to help you avoid the complexities of legal requirements, offering affordable and reliable support every step of the way.

At Kanakkupillai, we believe every business is unique. That’s why we offer customized solutions to meet your business's distinct requirements, whether it’s managing daily transactions, preparing financial statements, or handling tax filings. With our affordable pricing and unwavering support, you can rest assured that your business will stay on track, free from the complexities of compliance and legal challenges.

Choose Kanakkupillai for reliable, cost-effective, and expert share transfer services that align with your business needs.

Frequently Asked Questions

What is a Share Transfer? +

A share transfer is the process through which an individual (the transferor) transfers ownership of shares to another person or entity (the transferee) within a company.

How do you transfer shares in a private company? +

The process involves executing a Share Transfer Deed (Form SH-4), paying the applicable stamp duty, obtaining board approval, and updating the register of shareholders.

What are the stamp duty rates for share transfers? +

Stamp duty for share transfers is typically 0.25% of the value of unlisted shares and 0.015% for listed shares, as per the Indian Stamp Act, 1899.

What happens if the board rejects a share transfer? +

If the board of directors rejects a share transfer, the transfer is considered void, and the company will return the documents to the parties with an explanation for the refusal.

Can a minor transfer shares? +

No, a minor cannot transfer shares unless they have a legal guardian or a representative acting on their behalf, and only if legally allowed under the Articles of Association.

How long does a share transfer take? +

A share transfer must be completed within 60 days from the receipt of the Share Transfer Deed and other necessary documents as per Section 56 of the Companies Act, 2013.

What is the penalty for not paying stamp duty? +

Failure to pay the required stamp duty makes the transfer deed invalid, and the company may reject the transfer, while the transferor and transferee could be liable for penalties under the Indian Stamp Act, 1899.