How to Transfer Shares in A Private Limited Company in India?

Shareholders are the main owners of a Private Limited Company. Share transfer process needs to be followed in case the company wants to introduce new investors or any shareholder in a company or in case existing shareholders want to transfer their ownership. The public cannot be invited to subscribe the shares of a private limited company. In a private limited company, transfer of shares can be restricted by the Article of Association of the Company. 

Shares transfer ability in a private limited company makes it easy for the shareholders to make the stake changes among the members. Because of this, Private Limited Companies are usually preferred over any other type of business entity by the new entrepreneurs. 

Section 56 of the Companies Act, 2013 Rule 11 of Companies (Share Capital & Debentures) Rules 2014 describes the provisions regarding the share transfer process in a private limited company. 

What Is The Procedure For Transfer Of Shares In A Private Limited Company?

Below is the step by step procedure of share transfer in a Private Limited Company in India:

1. Step: The first step is to verify whether the Articles of Association of a company allows the transfer of shares among the shareholders of the company. In case Articles of Association of a company does not allow then first article has to be amended by passing a special resolution in the extra-ordinary general meeting of shareholders. Thereafter form MGT-14 is filed with the Registrar of Companies.

2. Step: The next step is that the written notice shall be given by the transferor regarding his/her intention to transfer shares to the company.

3. Step: The third step is that members shall be informed regarding the shares availability in the company and the price will also be mentioned on which shares are available. The directors or the auditors of the company can finalize the price of the shares.  A time limit will be set within which shares will be available and they can be purchased by the members. In the case where within the defined time period shares are not purchased by the members then the transfer shall be accepted by the company. 

4. Step: The fourth step is concerned with obtaining share transfer deed in the prescribed form SH-4. This form is required to be signed by both the transferor and transference. As per the Indian Stamp Act, stamps shall be affixed on the transfer deed. The present rate for share transfer is 25 Paise for every one hundred rupees (100Rs.) of the value of shares. There should be a witness of the signatures of both the transfer or and transference whose details must be provided such as signature, name and his / her address.

5. Step: With the share transfer deed, a share certificate or letter of allotment must be attached. Thereafter it is delivered to the company. Within the period of 60 days from the date of its execution, a share transfer deed needs to be deposited with the company by the transferor and transferee or any other person on their behalf. 

6. Step: After passing a board resolution, share transfer shall be registered by the board. In case the board denies registering the share transfer then the notice will be served to the transferee.  Within the period of 30 days from the date the notice is served by the company to the transferee, an appeal can be made to the tribunal. It is required to be noted that there is no requirement of giving intimation to the Registrar of the Company. However, the intimation regarding the share transfer of the company shall be given only at the time of filing an annual return by the company in form MGT-7.  

Provisions regarding transfer of Partly Paid up Shares

For transfer of partly paid-up shares of the company, a notice shall be given to the transferee in form no. SH-5. After receiving the notice, a no objection certificate will be given by the transferee to the company within the prescribed period of 2 weeks and thereafter company will register the share transfer in its record.

The penalty for Non-compliance of Share transfer Provisions

As per the provisions of the Companies Act 2013, in case of non-compliance made by the company regarding the transfer of shares, the company shall be punishable with the fine penalty of minimum Twenty-Five Thousand Rupees (Rs.25000) however the fine may extend to Five Lac Rupees (Rs.5 lakhs) and it also includes that every officer in default will be punishable by a fine of minimum Ten Thousand Rupees (Rs.10,000) however which may extend to One Lac Rupees (Rs.1,00,000).

If you want any sort of assistance for the process of share transfer then our team of professionals can help you. We provide end to end solutions.