Share Transfer Procedure for Pvt Ltd Company

Share Transfer Procedures in a Pvt Ltd Company is a systematic way of transferring the ownership of shares from one owner to the other. Shares are the units of ownership in a company, and they can be bought, sold, or transferred. The shares in a private limited company are not traded publicly, it can only be sold or transferred to others.

The transfer of shares in a private limited company in India is governed by the Companies Act, 2013, and the rules and regulations prescribed by the Ministry of Corporate Affairs (MCA). In this blog post, we will discuss the procedure for share transfer in a private limited company.

Share Transfer Restrictions

In a Private Limited Company, the transfer of shares is restricted to the company's Articles of Association (AOA). The AOA must be reviewed before any share transfer process begins.

Restrictions on Shareholders' Right to Transfer Shares

• Rights of Pre-emption: If a shareholder wants to sell their shares, the shares must first be offered to other existing members of the company at a price determined by the Directors or the Auditor of the Company. The method for valuing shares is prescribed in the Articles of Association. If no existing shareholder is interested, the shares may be freely transferred to an outsider.
• Powers of Directors to Refuse: As per the provisions mentioned in the Articles of Association, a director may refuse to transfer shares to another person. The director has the power to take decisions on share transfers in a Pvt Ltd Company.

Only the restrictions specified in the Articles of Association are legally binding, and any private agreements between shareholders are not binding on the company or the shareholders. The right to transfer shares cannot be completely prohibited or banned, as it is not permissible under the law.

How to Transfer Shares in a Private Limited Company

The process of transfer of shares in a Private limited company is given below:

Step 1: Obtain Share Transfer Deed

The first step in the share transfer process is to obtain a Share Transfer Deed, which is a legal document that transfers the ownership of shares from the transferor (seller) to the transferee (buyer). The Share Transfer Deed should be executed by both parties and must be stamped and signed in accordance with the Indian Stamp Act, 1899.

The Share Transfer Deed should contain the following details:

• Name of the company
• Number and class of shares being transferred
• Name, address, and PAN of the transferor and transferee
• Consideration for the transfer of shares
• Date of execution

Step 2: Obtain No Objection Certificate(NOC)

If a resignation letter is required, the director should prepare a formal letter of resignation addressed to the board of directors or other appropriate stakeholders. The letter should include the effective date of resignation and the reason for resignation, if desired. The letter should be professional and concise.

The transferor should submit a written request to the company along with the original share certificate, the Share Transfer Deed, and the prescribed fee. The company will verify the documents and issue the NOC if there are no objections.

Step 3: Submit Transfer Documents

The transferor should submit the Share Transfer Deed, along with the original share certificate and NOC, to the company within 60 days of the execution of the Share Transfer Deed.

The company will verify the documents and update its records to reflect the transfer of shares. The company should also issue a new share certificate in the name of the transferee.

Step 4: Board Approval

The board of directors of the company will consider the transfer request and approve or reject it based on the provisions of the Articles of Association and the applicable laws and regulations.

If the transfer is approved, the board will record the transfer in its minutes and update the shareholders' register.

Step 5: Pay Stamp Duty

The Share Transfer Deed is subject to stamp duty, which is payable as per the applicable rates in the respective state. The stamp duty should be paid before the transfer documents are submitted to the company.

Step 6: File Necessary Forms

The company should file the necessary forms with the Registrar of Companies (RoC) within 30 days of the transfer of shares. The forms to be filed include Form SH-4 (for transfer of shares) and Form MGT-7 (for filing annual returns).

Share Transfer Restrictions

In a Private Limited Company, the transfer of shares is restricted to the company's Articles of Association (AOA). The AOA must be reviewed before any share transfer process begins.

Restrictions on Shareholders' Right to Transfer Shares

• Rights of Pre-emption: If a shareholder wants to sell their shares, the shares must first be offered to other existing members of the company at a price determined by the Directors or the Auditor of the Company. The method for valuing shares is prescribed in the Articles of Association. If no existing shareholder is interested, the shares may be freely transferred to an outsider.
• Powers of Directors to Refuse: As per the provisions mentioned in the Articles of Association, a director may refuse to transfer shares to another person. The director has the power to take decisions on share transfers in a Pvt Ltd Company.

Only the restrictions specified in the Articles of Association are legally binding, and any private agreements between shareholders are not binding on the company or the shareholders. The right to transfer shares cannot be completely prohibited or banned, as it is not permissible under the law.

Documents Required for Share Transfer in Pvt Ltd Company

The following are the documents required for share transfer in a Private Limited Company:

• Share Transfer Deed: This is the primary document required for share transfer and must be executed by the transferor and transferee.
• Share Certificate: The original share certificate must be submitted by the transferor along with the share transfer deed.
• PAN Card: A copy of the PAN Card of the transferee is mandatory for the transfer of shares.
• Board Resolution: The Board of Directors of the company must approve the transfer of shares and pass a Board Resolution to that effect.
• No Objection Certificate (NOC): The company may also require a NOC from the transferor stating that there is no objection to the transfer of shares.
• Indemnity Bond: The transferor may be required to execute an indemnity bond indemnifying the company against any losses that may arise from the transfer of shares.
• Payment of Stamp Duty: Stamp duty must be paid on the share transfer deed at the rate applicable in the respective state.

It is advisable to consult with a professional to ensure that all the necessary documents are in order and that the share transfer process is executed smoothly and in compliance with applicable laws and regulations. You may contact our team at Professional Utilities for the share transfer process and Company Incorporation.

Conclusion

In conclusion, the transfer of shares in a private limited company involves several steps and compliances. It is advisable to seek professional guidance and assistance to ensure compliance with the applicable laws and regulations and to avoid any legal issues or disputes. A company secretary or a legal professional can help you navigate the share transfer process smoothly and efficiently.

FAQs on Share Transfer in Pvt Ltd Company