Share Transfer refers to the voluntary handing over of ownership of shares from one person (transferor) to another (transferee). Governed under the Companies Act, 2013, share transfer is a common corporate action in private and public companies, allowing existing shareholders to exit or restructure ownership. While shares of public companies are freely transferable, private companies may impose certain restrictions through their Articles of Association (AoA).
WHAT IS SHARE TRANSFER?
Share Transfer is the process of transferring ownership of shares from one person (the transferor) to another (the transferee). It allows existing shareholders to sell or gift their shares voluntarily, subject to the rules laid out in the Companies Act, 2013 and the company’s Articles of Association (AoA). The transfer becomes legally effective only when it is registered by the company. Share transfer is common in both private and public companies, although private companies often have restrictions.
FEATURES OF SHARE TRANSFER:
- Voluntary Transfer: Ownership is transferred by the shareholder willingly, through sale, gift, or inheritance.
- Governed by AoA: Private companies may impose restrictions on share transfers through their Articles of Association.
- Instrument of Transfer: Requires execution of Form SH-4 (Share Transfer Deed) for physical share transfers.
- Board Approval: Transfers in private companies usually require approval by the Board of Directors.
- Stamp Duty Applicable: Transfer of shares attracts stamp duty under the Indian Stamp Act.
REQUIREMENTS:
- SH-4 Deed: Executed and duly stamped Share Transfer Deed (Form SH-4).
- Share Certificates: Share certificates of the shares being transferred.
- Signatures: Consent and signatures of both transferor and transferee.
- Board Resolution: Board resolution approving the transfer (in case of private companies).
- Register Update: Update in the Register of Members post-approval.
ADVANTAGES OF SHARE TRANSFER:
- Exit Option for Shareholders: Allows investors/shareholders to liquidate or transfer ownership.
- Ownership Restructuring: Facilitates internal changes in shareholding or promoter structure.
- Compliance with Law: Ensures legal recognition and continuity of shareholder rights.
- No Need for Company Incorporation: Enables transfer of business interest without forming a new company.
ENTITIES INVOLVED IN SHARE TRANSFER:
- Private Limited Companies
- Public Limited Companies
- Startups & MSMEs
- Joint Venture Participants
FREQUENTLY ASKED QUESTIONS
Q1: Is share transfer allowed in a private limited company?
A1: Yes, but it is subject to restrictions mentioned in the company’s Articles of Association.
Q2: Is stamp duty applicable on share transfer?
A2: Yes, stamp duty is levied at 0.25% of the consideration or market value of shares, whichever is higher.
Q3: What is Form SH-4?
A3: Form SH-4 is the official Share Transfer Deed used for transferring shares in physical form.
Q4: Can shares be transferred without share certificates?
A4: No, the original share certificate must be surrendered for the transfer to be registered.
Q5: Is approval from the Board necessary?
A5: Yes, especially in private companies, the Board must approve the transfer through a resolution.
Q6: Is ROC filing required for share transfer?
A6: Generally, no separate ROC filing is required, but the updated Register of Members must be maintained.
Q7: Can shares be transferred to non-residents?
A7: Yes, but such transfers must comply with FEMA regulations and may require RBI approval.
Q8: What happens after the share transfer is approved?
A8: The company updates the Register of Members and issues a new share certificate to the transferee.