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You should know that the articles of a company govern the transfer of shares in a private company. You can start with the transfer of shares form, which is Form No. SH-4 or, Securities Transfer Form. It is pursuant to Section 56 of Companies Act 2013 (1) and follows the share transfer rules. This is sub-rule (1) of rule 11 of the Companies (Share Capital and Debentures) Rules 2014.
A company will need to register a transfer of securities of the company to complete the process of share transfer. This is as per the format in Form No SH. 4, then you can hold such securities in the physical form. Filling this form for transfer of shares is the first and foremost step under the procedure of share transfer.
One of the important features of the securities of a company is the transferability of shares in a private company. Section 44 of the Companies Act, 2013 provides that the shares, debentures or other interest of the member of a company are moveable property. Hence, they're transferable in the manner as provided in the company’s articles of association.
Both Transfer and Transmission of Shares are different from each other. So, let's understand how they're different and exactly what is 'transfer of shares.'
Generally, securities of a company are freely transferable though there may be certain restrictions on the transfer of shares of the private company as provided in the articles.
Such restriction on transfer of shares, if one adds any is to protect the interest of shareholders and other security holders.
Section 56 of Companies Act 2013 provides that the transfer of shares of the company and other securities will be registered by a company only when a proper instrument for transfer of shares (share transfer form) is filed as prescribed in Form No. SH 4.
You need to duly stamp the SH 4 format for transfer of share with adequate value and date. Also, one can execute it by or on behalf of the transferor and the transferee.
One needs to send Form SH 4 to the company by the transferor or the transferee of the shares within 60 days from the date of execution, of the share transfer agreement. Along with the share transfer certificate or certificate relating to securities. In case there is no such share transfer certificate, then one must send the application for transfer of shares along with the letter of allotment of securities.
Also one must obtain a 'No Objection Letter' from the buyer within two weeks from the date of receipt of a notice.
One has to deliver all the share transfer certificates by the company within a period of one month from the date of receipt of the share transfer agreement or the share transfer certificate by the company. Unless the company can't deliver due to an order of the Court or instruction by other authorities.
One has to duly stamp the share transfer form, Companies Act 2013 says so. It also adds that the stamp should have adequate value with the date.
Also, it should be cancelled in accordance with Section 12 of the Indian Stamp Act(2), when you have to send the share transfer form is to be sent to the board of directors.
The seller of the shares has to pay the stamp duty at the rate of Rs 0.25 for every Rs. 100 worth of shares. For stamping purpose in a transfer of shares special adhesive stamps having the word ‘share transfer’ shall be used.
Section 8A of the Indian Stamp Act provides that for the electronic share transfer form, India. You can pay the stamp duty on the total amount of issuing the shares or securities.
One is not liable to pay stamp duty in case of transfer of registered ownership of share from a person to a depository or from a depository to a beneficial owner.
It is easy to find the price of the shares in case of listed companies as they are easily available on the stock exchanges. However, it is difficult to obtain the price of shares of private companies.
In such cases, generally, determination of the valuation of shares for the purpose of stamp duty shall be done on the basis of the average market value of shares at the time of transfer or agreed price between the transferor and the transferee of the shares, whichever is high.
Usually, the articles of the company have provisions which provide that the shares must be sold at a fair price determined by the directors or the company’s auditors.
The Share Transfer Procedure of Public Company:
Section 56 to 59 of the Companies Act, 2013(3) provides for the procedure of transfer of shares of a company. The basic transfer procedure of shares is as follows:
The board shall then register the transfer of shares if the documentation with regard to the transfer of shares is in order. The board shall register such transfer of shares only after passing a board resolution
The Procedure for Transfer of Shares in a Private Limited Company
As told earlier, the articles of the company or their association govern the share transfer procedure in private limited company. These are the following steps for transfer of shares in a private company:
One should duly execute the form for transfer of shares in a private company by both the transferor and transferee. For execution, the deed should be duly stamped, adequately valued, dated and cancelled
In respect to the transfer of shares, you should attach it with the deed and send the same to the company within 60 days from the date of execution either by the transferor or the transferee of shares
Share transfer agreement and the executive shareholder agreement shall regulate the relationship between the shareholder
The Transfer of Shares Procedure Under Depository System
Section 56(4) of the Companies Act, 2013 provides for the transfer of share under the depository system.
Under this section when a company is doing a transfer of shares or other securities through a depository, then one should inform the details of allotment of shares or securities immediately to the depository.
If one is doing the transfer of shares fraudulently by any depository or depository participant, then it shall be liable under Section 447 of the Companies Act, 2013.
Following is the stepwise procedure for share transfer by the depository system:
When all the formalities related to transfer of share such as share transfer deed has been executed and handing over the share certificate is complete.
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 Section 56 of Companies Act, 2013: A detailed view of Section 56 of the Companies Act, 2013
 Section 12 of the Indian Stamp Act: A detailed view of Section 12 in The Indian Stamp Act, 1899
 The Companies Act, 2013: A sitemap to The Companies Act, 2013