Share Transfer
Share Transfer in a Private Limited Company
What is Share Transfer?
Share transfer means voluntarily transferring ownership of shares from one person (the transferor) to another (the transferee). It usually occurs due to sale, gift, or change in ownership.
📋 Key Regulations for Share Transfer in a Private Company
Private Limited Companies are governed by:
• Companies Act, 2013
• Company's Articles of Association (AoA)
Note: The AoA may place restrictions on share transfers, like:
• Right of first refusal to existing shareholders
• Board approval for the transfer
📘 Share Transfer Rules in Private Limited Companies
1. Restriction in AoA – Shares can’t be freely transferred unless allowed by the AoA.
2. Pre-approval from Board – Board approval is generally needed.
3. Offer to Existing Shareholders – Shares must first be offered to current shareholders.
4. Stamp Duty Payment – Transfer is not valid without stamp duty on the share transfer deed.
📑 Documents Required for Share Transfer
1. Share Transfer Deed (Form SH-4)
2. Original Share Certificate
3. Board Resolution (Approving the transfer)
4. PAN Card and ID Proof of both parties
5. Stamp Paper for paying stamp duty
🔄 Share Transfer Process in a Private Limited Company
1. Check AoA for any restrictions.
2. Execute Share Transfer Deed (Form SH-4)
3. Pay Stamp Duty
4. Submit Deed + Share Certificate to the company
5. Board Meeting Approval
6. Update Register of Members
7. Issue new Share Certificate to the transferee
📝 Executing the Share Transfer (Step-by-Step)
1. Buyer and seller sign the SH-4 form
2. Pay applicable stamp duty (0.25% of the consideration)
3. Submit documents to the company
4. Company reviews and approves transfer
5. Buyer’s name entered in Register of Members
6. New Share Certificate issued
Share Transfer vs Share Transmission
| Basis | Share Transfer | Share Transmission |
|---|---|---|
| Cause | Voluntary (Sale, gift) | Involuntary (Death, insolvency) |
| Action Required | Initiated by shareholder | Initiated by legal heir/representative |
| Documentation | Transfer deed, board approval | Death certificate, succession proof |
| Board Approval | Required | Usually required |
| Stamp Duty | Yes | No |
What is Transmission of Shares?
Transmission happens when shares are transferred due to death, bankruptcy, or legal incapacity of the shareholder. It is not a sale, but a legal passing of ownership to a nominee or legal heir.
How to Transfer Shares from One Demat Account to Another?
1. Fill Delivery Instruction Slip (DIS) from your DP (Depository Participant)
2. Provide Demat account details of the receiver
3. Submit DIS to your DP
4. Shares will be transferred electronically within 1-2 business days
For online transfer, use platforms like NSDL/CDSL Easiest services.
Frequently Asked Questions (FAQs)
1. 🔄 Can shares be freely transferred in a private limited company?
Answer: No, share transfers in private limited companies are restricted by their Articles of Association (AoA). These usually require Board approval and may give existing shareholders the Right of First Refusal.
2. 📝 Is Board approval mandatory for every share transfer?
Answer: Yes, in most private limited companies, the Board of Directors must approve the transfer of shares, especially if required by the AoA.
3. 📄 What is Form SH-4 and when is it used?
Answer: Form SH-4 is a Share Transfer Deed used for transferring physical (non-demat) shares. It must be duly signed and submitted to the company within 60 days of execution.
4. 💰 Is stamp duty applicable on share transfers?
Answer: Yes, stamp duty is mandatory and is usually 0.25% of the total consideration or the market value, whichever is higher.
5. 👥 What happens if a shareholder dies?
Answer: This is treated as a Transmission of Shares. The legal heir or nominee must submit a death certificate, succession proof, and apply for transfer of shares in their name.
6. 📈 Can shares be transferred between two Demat accounts?
Answer: Yes, shares in demat form can be transferred either:
•Offline: Using a Delivery Instruction Slip (DIS)
•Online: Using NSDL/CDSL Easiest portal
7. ⌛ How long does the share transfer process take?
Answer: Typically 7–15 business days, depending on document verification and Board meeting schedules.
8. ❗Can a share transfer be rejected by the Board?
Answer: Yes. If the AoA allows, the Board may refuse a share transfer, especially if it's not in the interest of the company or violates internal rules.
9. 🛑 Can shares be transferred to anyone outside the company?
Answer: Not always. The AoA may restrict transfer to outsiders. Typically, shares must first be offered to existing shareholders before being offered to external parties.
10. 👥 Can a minor hold shares in a private limited company?
Answer: A minor cannot enter into a contract, so they cannot be a registered shareholder. However, shares can be held in trust by a guardian until the minor attains majority.
11. 🔍 How to verify if shares are in demat or physical form?
Answer: You can check with the Depository Participant (DP) or review the share certificate. Demat shares are held electronically and reflected in the Demat account statement.
12. 🧾 Is notarization or attestation required for share transfer documents?
Answer: Notarization is not mandatory unless specified by AoA or required under special circumstances (e.g., NRI transfer, legal disputes).
13. 🌍 Can an NRI transfer shares in a private limited company?
Answer: Yes, but it must comply with FEMA (Foreign Exchange Management Act) regulations, and in some cases, RBI approval may be needed.
14. 🧑💼 Who is responsible for updating the Register of Members?
Answer: The Company Secretary or compliance officer is responsible for updating the Register of Members once the share transfer is approved by the Board.
15. 📋 Is it mandatory to issue a new share certificate to the transferee?
Answer: Yes. After the transfer is approved and recorded, the company must issue a new share certificate in the name of the transferee within 1 month from approval.
16. ⚖️ Can a private company refuse a share transmission?
Answer: No. Transmission is a legal right, and the company cannot refuse it if valid documents (e.g., death certificate, legal heir proof) are provided.
17. 📤 What if a shareholder loses the original share certificate?
Answer: The shareholder must apply for a duplicate share certificate by submitting an indemnity bond, FIR copy (if required), and Board approval.
18. 🏦 Can I transfer shares through a stock exchange?
Answer: No. Private limited company shares are not listed, so transfers must be handled privately following the company’s internal procedures.
19. 🧾 What if the transferor refuses to hand over the share certificate?
Answer: The transferee can issue a legal notice or approach the company to assist. The company may require an indemnity bond before processing the transfer or issuing a duplicate certificate.
20. 📉 What happens if shares are transferred at a lower price than market value?
Answer: The Income Tax Department may treat the difference as a gift or deemed income. Also, stamp duty will still be charged on the higher of market value or transaction value.
