How to transfer shares of a private limited company

Share Transfer Procedure in Private Limited Company

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Share Transfer Procedure in Private Limited Company

The ownership of a private limited company is determined by the shareholding of the Company. To induct new investors or transfer ownership of the Company, the share of the private limited company would have to be transferred. In this article, we look at how to transfer shares of a private limited company.

Share Transfer Restrictions in AOA

A private limited company is considered to be a “closed corporation” of members, similar to a Partnership Firm. Therefore, the share transfer in a Private Limited Company can be restricted by the Articles of Association (AOA). Hence, the Articles of Association of the Company must be reviewed prior to beginning the share transfer procedure.

Restrictions on right of the shareholders to transfer shares are usually in two forms:

  • Rights of pre-emption: If a shareholder wishes to sell some or all of his shares, such shares must first be offered to other existing members of the private limited company at a price determined by the Directors or the Auditor of the Company. The value of the shares can be determined based on the formula / method prescribed in the Articles of Association. In no existing shareholder is interested, then shares of the Company can be freely transferred to an outsider.
  •  Powers of Directors to refuse: The Director may have the powers to refuse registration of transfer of shares under certain circumstances – prescribed in the Articles of Association.

Only restriction contained the Articles of Association are considered legally binding. Any private agreement between the shareholders are not binding either on the company or on the shareholders. Further, share transfer can only be restricted by the Articles of Association. The right to transfer shares of a private limited company cannot be an total prohibition or ban on share transferability.

Share Transfer Procedure Initiation

Share Transfer Procedure in Private Limited Company
Share Transfer Procedure in Private Limited Company

To initiate the share transfer procedure, the following steps must be followed:

  • Step 1: Review the AOA: Articles of Association of the Private Limited Company must be reviewed and restrictions, if any must be addressed.
  • Step 2: Shareholder must give notice in writing to the Director of the Company about intention to transfer share of the company.
  • Step 3: Determine the price as per Articles of Association at which the shares of the Company will first be offered to present shareholders of the Company. (Usually this price is determined by the Directors of the Company or an Auditor of the Company.)
  • Step 4: The company must then give notice to the other shareholders about the availability of share, the last date to purchase the shares and the price at which the share are available.

If any of the present shareholders come forward for the purchase of shares, such shares must be allotted to them. In case no present shareholder is interested or excess shares are available, the same can be transferred to the outsider.

How to Transfer Shares of a Private Limited Company

To effect the share transfer, the following steps must be followed:

  • Step 1: Obtain share transfer deed in the prescribed format.
  • Step 2: Execute the share transfer deed duly signed by the Transferor and Transferee.
  • Step 3: Stamp the share transfer deed as per the Indian Stamp Act and Stamp Duty Notification in force in the State.
  • Step 4: Have a witness sign the share transfer deed with his/her signature, name and address.
  • Step 5: Attach the share certificate or allotment letter with the transfer deed and deliver the same to the Company.
  • Step 6: The company must process the documents and if approved, issue new share certificate in the name of the transferee.

To know more about share transfer of a private limited company, visit IndiaFilings.com.

Comments (14)

Bhushan

Jul 18, 2015 at 5:08 PM

Hello,

In a private limited company, after the transfer of shares has been done (forms, etc), for which the share holder has been paid the relevant amount as per AOA. But, still the previous share holder has not deposited the payment cheque into his bank for clearance. In such case, does he have rights in the Company still?

Business Advisor

Aug 01, 2015 at 5:41 PM

Dear Sir,

Greetings from Indiafilings.com, India’s premier online consulting company !!!

We acknowledged the receipt of your mail. It’s our pleasure to assist you with your requirement, We think it is better to have a telephonic conversation with our business adviser for a detailed business commentary, so please let us know your contact number to guide you better.

Looking forward to work with you in the near future.

Thanks & Regards,
Indiafilings Team.

SK GARG

Oct 13, 2015 at 2:17 PM

In a private limited company, after the transfer of shares has been done (forms, etc), for which the share holder has been paid the relevant amount as per AOA. But, still the previous share holder has not deposited the payment cheque into his bank for clearance. In such case, does he have rights in the Company still?

viral

Oct 15, 2015 at 11:54 AM

what is the stamp fees if transfer of shares on zero consideration..?

RK Bhatia

Mar 12, 2016 at 10:52 PM

We are a private limited company with 2 directors. one of the director wants to sell his part holding in the company to third person who is a foreign national (with the consent of existing second director). Please advise process to be followed to safeguard the company as well as existing directors’ interest and also to ensure statutory compliance. What kind expenses for transfer fees etc are involved.

Sumesh

Mar 17, 2016 at 11:20 AM

Hi Bhatia,
You can discuss this with our Business Advisors. Please contact 04440247777 or email [email protected]

Sldogra

Mar 17, 2016 at 12:36 PM

From where to get share transfer form

Sumesh

Mar 17, 2016 at 5:09 PM

Hi Sldogra,
you can discuss this with our Business Advisors. Please contact 04440247777

Muneer

Apr 11, 2016 at 10:09 AM

Dear Sir,
I am Muneer working with a private Ltd company.My Query is that 2 of the directors had resigned from the company.Now the share holdings of these resigned directors should be transffered.What is the procedure for the same.Hope you will help in this regard.

Sumesh

Apr 11, 2016 at 12:58 PM

Hi Muneer,
Please provide your email address and contact number ,so that I can ask our business adviser to call you.

rajesh

Apr 21, 2016 at 1:36 AM

Whether share transfer in the name of purchaser without stamp duty is a valid transfer or not? If not valid then what are the remedies?

Sumesh

Apr 22, 2016 at 12:50 PM

Hi Rajesh,
You can transfer shares without stamp duty but there is lots of procedures to follow.our business advisors will explain you please call @ 04440247777.

Brijesh

Apr 20, 2017 at 4:29 PM

Once the SH-4 Form has been Executed in how many days it should be registered by company.

Rahman

Apr 20, 2017 at 11:08 PM

Thank you for the quick Reply..

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