Share Transfer  – Company

Share Transfer – Company

With respect to the transfer of securities, any contract or arrangement between two or more persons shall be possible through a contract. The provisions of the Companies Act deals with transfer and transmission* of securities. *Transmission of securities means loss of title on these securities due to death, succession, inheritance, bankruptcy etc. In short, it is something other than transfer.

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    Share Transfer – Company – An Overview

    A private limited company is regarded as a “closed corporation” comprised of members, akin to a Partnership Firm. Consequently, the transfer of shares within a Private Limited Company may be limited by the Articles of Association (AOA). Therefore, it is essential to examine the Articles of Association of the Company before initiating the share transfer process.

    • 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.
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    Share Transfer Procedure Initiation

    Step 1: It is essential to examine the Articles of Association of the Private Limited Company, ensuring that any restrictions are identified and addressed accordingly.

    Step 2: The shareholder is required to provide written notification to the Company Director regarding their intention to transfer shares in the company.

    Step 3: The price at which the shares will initially be offered to existing shareholders must be established in accordance with the Articles of Association. Typically, this price is set by the Company Directors or an appointed Auditor.

    Step 4: Subsequently, the company must notify the other shareholders about the availability of the shares, including the deadline for purchase and the price at which the shares are being offered.

    Should any current shareholders express interest in acquiring shares, those shares shall be allocated to them. If no existing shareholder shows interest or if there are surplus shares, those shares may be transferred to external parties.

    Procedures for Share Transfer – Physical Mode

    The transfer of share ownership can occur through the delivery of possession; however, it is essential to recognize the existing contractual relationship between the shareholders and the company. Upon the transfer of shares, this contractual relationship is assigned to the new owner, necessitating a formal instrument of transfer. The process of transferring a share entails several steps: initially, an agreement to sell is established through a Share Transfer Deed, followed by the execution of a deed of transfer, and concluding with the registration of the transfer.

    A share transfer deed serves as a formal instrument for the transfer of shares and must be executed by both the transferor and the transferee. It is essential that the share transfer deed is properly stamped and submitted to the company along with the relevant share certificate. Any transfer instrument that does not adhere to these requirements will not be accepted by the company. The physical transfer of shares is facilitated through the use of Form “SH-4”.

    Scrutiny Upon receiving all transfer documents, a thorough examination should be conducted to verify that all necessary documents are present. This scrutiny should occur within three to five days of receiving the transfer documents. If any documents are found to be unacceptable, they should be returned to the transferee. Additionally, if the signature of the transferor on the transfer instrument does not match the specimen signature on the company’s records, the documents will be returned.

    Acknowledgment Certain companies may issue a notice or acknowledgment to the transferor who has submitted a transfer request prior to the examination of the documents. This acknowledgment typically takes the form of a letter that includes a checklist for reviewing the transfer documents. Some companies also have a practice of providing a transfer receipt. If the transfer application is submitted solely by the transferor and he has made a partial payment for the shares, the company is prohibited from registering the transfer unless it has received acknowledgment from the transferee, who must not raise any objections to the transfer within two weeks of receiving the notice. There is no legal requirement for the company to notify the transferor when the transfer documents are submitted by the transferee.

     

    Approval All share transfers must be submitted to the Board of Directors or an appropriate committee for approval. The registration process occurs only after this approval is granted. If the transfer meets all necessary criteria upon review, it must receive endorsement from the designated authority. The board is responsible for approving share transfers. Should the company’s articles permit, the board may delegate its authority to approve share transfers to a committee that may not consist of the company’s directors.

    Registration The registration of a share transfer is essential for the transferee to attain membership status within the company. A transfer is deemed incomplete without the formal registration of the share transfer. The share transfer form serves as a document in which the transferee consents to accept the shares, thereby establishing a legal contract with the company. Upon the company’s approval and registration of the transfer, the transferee’s name is entered into the member registry, confirming their status as a member. It is important to note that maintaining a register of transfers is not a statutory obligation.

    Delivery of Share Certificate The effectiveness of the transfer is contingent upon the company’s registration of the shares. The company is required to deliver the share certificate within one month of receiving the transfer instrument. The transfer instrument must be duly endorsed with the name of the transferee.

    Legalixo Support in transitioning a Share Transfer – Company

    • Purchase a Plan for Expert Assistance
    • Add Queries Regarding the conversion
    • Provide Documents to Legalixo Expert
    • Complete all other required Actions
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    Share Transfer Procedure Initiation

    Step 1: It is essential to examine the Articles of Association of the Private Limited Company, ensuring that any restrictions are identified and addressed accordingly.

    Step 2: The shareholder is required to provide written notification to the Company Director regarding their intention to transfer shares in the company.

    Step 3: The price at which the shares will initially be offered to existing shareholders must be established in accordance with the Articles of Association. Typically, this price is set by the Company Directors or an appointed Auditor.

    Step 4: Subsequently, the company must notify the other shareholders about the availability of the shares, including the deadline for purchase and the price at which the shares are being offered.

    Should any current shareholders express interest in acquiring shares, those shares shall be allocated to them. If no existing shareholder shows interest or if there are surplus shares, those shares may be transferred to external parties.

    Procedures for Share Transfer – Physical Mode

    The transfer of share ownership can occur through the delivery of possession; however, it is essential to recognize the existing contractual relationship between the shareholders and the company. Upon the transfer of shares, this contractual relationship is assigned to the new owner, necessitating a formal instrument of transfer. The process of transferring a share entails several steps: initially, an agreement to sell is established through a Share Transfer Deed, followed by the execution of a deed of transfer, and concluding with the registration of the transfer.

    A share transfer deed serves as a formal instrument for the transfer of shares and must be executed by both the transferor and the transferee. It is essential that the share transfer deed is properly stamped and submitted to the company along with the relevant share certificate. Any transfer instrument that does not adhere to these requirements will not be accepted by the company. The physical transfer of shares is facilitated through the use of Form “SH-4”.

    Scrutiny Upon receiving all transfer documents, a thorough examination should be conducted to verify that all necessary documents are present. This scrutiny should occur within three to five days of receiving the transfer documents. If any documents are found to be unacceptable, they should be returned to the transferee. Additionally, if the signature of the transferor on the transfer instrument does not match the specimen signature on the company’s records, the documents will be returned.

    Acknowledgment Certain companies may issue a notice or acknowledgment to the transferor who has submitted a transfer request prior to the examination of the documents. This acknowledgment typically takes the form of a letter that includes a checklist for reviewing the transfer documents. Some companies also have a practice of providing a transfer receipt. If the transfer application is submitted solely by the transferor and he has made a partial payment for the shares, the company is prohibited from registering the transfer unless it has received acknowledgment from the transferee, who must not raise any objections to the transfer within two weeks of receiving the notice. There is no legal requirement for the company to notify the transferor when the transfer documents are submitted by the transferee.

     

    Approval All share transfers must be submitted to the Board of Directors or an appropriate committee for approval. The registration process occurs only after this approval is granted. If the transfer meets all necessary criteria upon review, it must receive endorsement from the designated authority. The board is responsible for approving share transfers. Should the company’s articles permit, the board may delegate its authority to approve share transfers to a committee that may not consist of the company’s directors.

    Registration The registration of a share transfer is essential for the transferee to attain membership status within the company. A transfer is deemed incomplete without the formal registration of the share transfer. The share transfer form serves as a document in which the transferee consents to accept the shares, thereby establishing a legal contract with the company. Upon the company’s approval and registration of the transfer, the transferee’s name is entered into the member registry, confirming their status as a member. It is important to note that maintaining a register of transfers is not a statutory obligation.

    Delivery of Share Certificate The effectiveness of the transfer is contingent upon the company’s registration of the shares. The company is required to deliver the share certificate within one month of receiving the transfer instrument. The transfer instrument must be duly endorsed with the name of the transferee.

    Legalixo Support in transitioning a Share Transfer – Company

    • Purchase a Plan for Expert Assistance
    • Add Queries Regarding the conversion
    • Provide Documents to Legalixo Expert
    • Complete all other required Actions
    • Get your work done!

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