The ownership of any Public Limited or private limited company in India is critically defined by the shareholdings of the company. Transfer of shares implies the voluntary handing of rights and duties of a shareholder, who does not wish to continue as a member of the company, to a person who wants to take the position. This transfer of shares, like any other moveable asset of the company, is possible only when there are no expressed restrictions on the transfer in the articles of association, prepared while Indian Company Incorporation.
Who are the involved parties in the transfer?
- Transferor
- Transferee
- Legal representative (in case deceased)
- Subscribers to the memorandum
- Company (unlisted/listed)
The Companies Act, 2013 lays the following procedure for the transfer of shares.
- The transfer deed should be drawn in the prescribed forms, which is Form SH-4, countersigned by the necessary authority.
- The transfer instrument may not be in the prescribed form only under the following situations.
- Where a nominee or director is transferring shares on behalf of a different body corporate under section 187 of the Companies Act, 2013.
- Where a nominee or director is transferring shares on behalf of some corporation controlled or owned by the state of the central government.
- Shares transferred by way of deposit as a security for repayment of some advance or loan, only when they are made with the following.
Any Scheduled Bank
State Bank of India
State Government
Central Government
Financial Institution
Any Other Banking Companies
Corporations held by the state or central government
The Trustees those who have already filled the declaration
In the case of transferring debentures, you can use a standard format as an instrument of transfer
- Bring the trust deed in case of debentures, the Articles of Association for shares, and the transfer deed that is either registered by the transferee or the transferor or on their behalf in proper accordance with the rules of the Companies Act, 2013.
- The Indian stamp act and the stamp duty notifications clearly say that the transfer deed should necessarily have stamps. The current Stamp Duty Value for transferring shares is 25 paisa for every 100 rupees of the value of the share or part thereof.
- Checking the affixed stamp on the transfer deed for its cancellation, before or at the time of signing it.
- The person who provides his/her initials such as name, signature, and address, as the approver of the transfer must ensure that both the transferee and the transferor should sign the deed in person.
- The relevant allotment letter or share/debenture certificate must be attached and sent to the company along with the transfer deed.
- If the application prepared by the transferor is for partly paid shares, then the company will have to notify the amount on debentures/shares to the transferee. A no-objection certificate is also required from the transferee, within two weeks of the notice’s receipt date.
- If the signed transfer deed is lost then attach the exact value stamp on a written application. In such a case, the board will be registering the transfer on the terms of indemnity whatever it thinks fit.
- If the shares being transferred are already listed on a recognized stock exchange, then there are no fees for the company to charge for the registration of the transfer of debentures or shares.
Cases where the company cannot register a transfer of partly paid shares
- When a company has already given a notice to the transferee in Form No. SH.5
- The date till which the transferee has not issued the no-objection certificate within two weeks of receiving notice from the company.
Approval
All the transfer of shares procedures must be completely approved by the board of directors or any such committee formed by the directors. If the scrutiny is successful and acceptable, then the transfer will get approval with the right authority.
Share Certificate Delivery
Your transfer will become effective only after the approved registration process of the company. The shares certificate gets delivered within one month from the receipt of the company’s instrument (for which transfer request is made).
The time limits associated with the procedure
- A company with a share capital
There should be no registration of any transfer of securities of the Company or member’s interest in the Company, other than beneficial owners, without a proper instrument of transfer within 60 days from the date of execution.
- Application by transferor only
For the company which is private limited in India, the transfer should not be registered until and unless the company has given a notice of the application to the transferor and the transferee gives no-objection certificate within 2 weeks from receipt of the notice.
- The company should deliver the certificates of all the transmitted/allotted/transferred securities in the below-mentioned cases along with the specific time limits.
Debenture allotment: within 6 months from the date of allotment.
In case of subscribers to memorandum – within 2 months from the date of incorporation
In case of allotment of any of its shares – within 2 months from allotment date.
Company’s receipt of the intimation of transmission or instrument of transfer: within 1 month from the date of receipt.
Penalties on parties involved in the transfer process
A penalty of a minimum of 25,000 and a maximum of 5,00,000 is imposed on the company for any wrong or delayed practices.
However, an officer in default is penalized with a minimum of 10,000 and a maximum of 1, 00,000.
For the detailed insight into the share transfer process in India, feel free to get in touch.
