What Is The Process To Transfer Shares In A Private Limited Company?

  Introduction 

 

In a Private Limited Company, the shareholders help decide the company’s ownership. During your business, if you want a new investor or change the ownership of the proposed Company you must transfer the shares. Today, we'll study the process for transferring shares in a Private Limited Company in India. This blog will also focus on all the information on share transfers, the share transfer process, and other share transfer-related details.




 

 What is a share transfer? 

 

The voluntary transfer of a share's title from one party to another is referred to as a share transfer. Shares of a company are often freely transferable, while the articles of incorporation may include restrictions on the transfer of Private Limited Company shares.

 

Benefits of transfer of shares

 

  • Capital appreciation, pay entitlement, limited responsibility, right shares, liquidity, bonus shares, demand over profits and assets, and other examples are all advantages of investing in equity shares.

  • You can reduce your tax bill.

  • Furthermore, you will be the proprietor of a rapidly expanding company.

  • You will work with the new private equity investor.

 

The restriction imposed by AOA (Articles of Association) in transferring shares

 

Similar to a partnership firm, a Private Limited Company is regarded as a "closed company" of its members. As a result, the Articles of Association have placed certain restrictions on the transfer of shares in a Private Limited Company.

 

Therefore, before initiating the share transfer process, the AOA of the company should be reviewed. The restrictions on the right to transfer shares by the shareholders are generally in two cases:

 

1. The directors have the power to deny the registration of a share transfer in certain conditions as outlined in the Articles of Association.

 

2. If a shareholder decides to sell his shares, the director or the company’s auditor must offer the shares to other existing members of the Private Limited Company in India at a price decided by the director or the company’s auditor. If that condition is not fulfilled then the process of share transfer will be kept on hold. The value of the shares can also be calculated using the methodology specified in the Articles of Association. If no present shareholders are interested, the company’s shares can be freely transferred to a third party.

 

The steps of share transfer of a Private Limited Company

 

The first steps in the process of transferring shares from the current shareholder to the new shareholder are as follows:

 

  • The company receives notice from the transferor.

  • A board resolution is passed by the Board of Directors reviewing the transferor's notice to the company.

  • The company delivered an offer letter to the existing shareholders.

  • The current shareholders have to submit a letter of objection, if any.

  • Stamp duty is reimbursed along with the SH-4 share transfer agreement.

  • Certificate must be shared.

  • The board of directors decided to record the share transfer.

 

Steps involved in initiating the share transfer procedure

 

  • The articles of association of the Private Limited Company will be scrutinized and if there are any restrictions then it must be revoked.

  • It is necessary to inform the director of the company in writing if you want to transfer a share of the company.

  • Set the price according to the articles of incorporation of the business, which specify that the company's shares are first sold to its existing shareholders.

  • The company must inform the other shareholders that shares are now available, along with the price and deadline for purchasing them.

 

The process to transfer shares of a Private Limited Company

 

  • Get a share transfer deed that complies with rules and guidelines.

  • Get the sign of both the transfer or and transferred and complete the transfer deed.

  • The transfer share deed should be stamped in accordance with the Indian Stamp Act and the State’s Stamp Duty Notification. For every 100 Rupee share value or a part of it, the official share transfer rate is 25 Paise.

  • The share transfer deed should also be signed by a person acting as a witness.  Such a person should sign the deed under his or her name, address, and signature.

  • Deliver the transfer deed to the company along with the share certificate or allotment letter.

  • The company must review the documents and, if authorized then issue a new share certificate in the transferee’s name.

 

 Conclusion 

 

The share transfer process will not be completed unless the company registers the transfer. Following registration, the company has only one month to send the transferee the share certificate. While shareholders in a Public Limited Company can easily and freely transfer their shares, the transferability of shares in a Private Limited Company is completed by following the guideline specified in the Articles of Association (AOA).

 

 

 

 

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