Generally, Securities are freely transferable though there may be certain restrictions imposed on the transfer of shares of the private company as provided in their articles. Such restrictions, if any are added to protect the interest of shareholders and other security holders. Section 56 of the Companies Act, 2013 provides that the transfer of shares of the company and other securities will be registered by a company only when a proper instrument of transfer of shares (share transfer form) is filed as prescribed in the Form No. SH 4. The form sh 4 for transfer of share needs to be duly stamped, with adequate value, dated and executed by or on behalf of the transferor and the transferee.
Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as represented in a share of the company) from a shareholder who wishes to not be a member in the company anymore to a person who wishes of becoming a member. Thus, shares in a company are transferable like any other movable property in the absence of any expressed restrictions under the articles of the company.
The securities of a company including the shares are generally freely transferable. Transfer of shares of the private company is governed by the articles of the company. Companies Act, 2013 provides for the procedure of transfer of shares by both public and the private company. The form sh 4 for transfer of share need to be filled.
One of the important features of the securities of a company is their transferability. Section 44 of Companies Act, provides that the shares, debentures or other interest of the member of a company are moveable property and hence are transferable in the manner as provided in the company’s articles of association.
Form SH-4 is needed to be sent to the company by the transferor or the transferee of the shares within sixty days from the date of execution of share transfer agreement along with the share transfer certificate or certificate relating to securities. In case there is no such share transfer certificate, the application for transfer of shares must be sent along with the letter of allotment of securities.
Note: A company shall not register a transfer of partly paid shares in these two cases:
The company has given a notice in Form No. SH.5 to the transferee
Till the transferee has given a NOC to the transfer within two (2) weeks from the date he received the notice from the company.
We will discuss what is meant by restriction for transfer of the share in case of PVT Company. The restriction means that share can not to be transferred directly to other non-member & we have to follow the following procedure for transfer of the share in a Private Company.
As there is a restriction for private companies under Companies Act, 2013 regarding the transfer of shares, So firstly the member who wants to transfer his share shall place a request to the company that he is willing to transfer his shares that can be offered to existing members of the company. (format given below)
After receiving notice of intention to transfer the share then this agenda shall be transacted at Board Meeting & notice toother existing membersember will be sent regarthe ding purchasthe e of share.
If no other existing member is ready to purchase share the then company shall send the letter to the member who want to sell his share stating that now he can transfer the share to non –existing member.
Then the shareholder who wants to transfer his share can submit the share transfer deed duly executed to the Company.
After receiving the Share Transfer deed along with Share Certificate Company need to pass a Board Resolution & register the entry for transfer of share. (Annexure)
Notice by transferor to Company
Board Resolution for considering the Notice by transferor to Company
Letter of Offer made by company to existing shareholder
Dissent letter from existing shareholders
Share Transfer Deed in SH-4 form along with stamp duty paid
Board resolution for registering transfer of shares
NOTICE BY TRANSFEROR
The Board of Directors
Sub: Request for transfer of 100 Equity Shares
This is to inform you that I,-----, the authorized representative of ____________, the Shareholder of -----Private Limited request you to transfer my -----Equity Shares held in the Company for a total consideration of Rs.----- (----- only) by making first offer to the other existing shareholder of the Company, as required by the Articles of Association of the Company.
This is to further inform you that in case the existing shareholder refuses to buy the offered shares then I request you to kindly allow me to transfer the said ----Equity Shares in favor of any person at a same or higher price as per the Articles of Association of the Company.
On Behalf of ____________
“LETTER OF OFFER”
We would like to inform that __________________, the Shareholder of our Company proposed to transfer its -----(-----Only) Equity Shares, held in the Company having the face value of Rs.--/- each at a premium of Rs. -----each, amounting to a total consideration of Rs.----- (Rupees ----- only) to the other existing shareholder of the Company.
Pursuant to Article 7 of the Articles of Association of the Company, the other existing Equity shareholders of -----Private Limited who are willing and wish to avail the said offer may accept by notice in writing. However, failing such acceptance, the offer shall be deemed to be declined and the Board of Directors may proceed to allow him to transfer this equity share to any person/(s) at the same or higher price.
Certified True Copy
For -----Private Limited Address
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF M/S ----- LIMITED HELD AT THE REGISTERED OFFICE OF THE COMPANY ______________________ ON DATE AT TIME
APPROVAL OF TRANSFER OF THE SHARES
"RESOLVED THAT pursuant to provisions of section 56 and other applicable sections of the Companies Act, 2013 and also subject to Articles of Association of the Company, the consent of Board, be and is hereby accorded to approve the transfer of equity shares, whose details given below;
No. of Shares
Share Certificate No.
RESOLVED FURTHER THAT any Director of the Company, be and is further authorised to transfer the shares to the transferee of the Company whose name is to be entered in the register of the Company and to make necethe ssary endorsement on the reverse of the share certificate
\\ Certified to be True //
For ----- Private Limited
TIME LIMITS IN CASE OF SHARE TRANSFER
A Company having share capital:- The Company shall not register transfer of securities of the Company or member’s interest in the Company other than beneficial owners without a proper instrument of transfer within a period of 60 days from the date of execution.
Application by transferor alone:- The transfer shall not be registered until and unless the company gives notice of the application to transferor and transferee gives no objection certificate within 2 weeks from receipt of the notice.
Company shall deliver certificates of all securities allotted/ transferred/ transmitted in the following cases and within the following mentioned time limits:-
In case of subscribers to memorandum – within a period of 2 months from the date of incorporation.
In case of allotment of any of its shares – within a period of 2 months from allotment date.
Receipt by the company of the instrument of transfer/ intimation of transmission – within a period of 1 month from the date of receipt.
Allotment of debenture – within a period of 6 months from the date of allotment.
At the End Penalty for Non-compliance
As per the provisions of the Act, where there is a non-compliance by the company of the provisions relating to the transfer of shares, the company shall be punishable with the fine, not less than Twenty-Five Thousand Rupees but which may extend to Five Lac Rupees and every officer in default will be punishable by a fine not less than Ten Thousand Rupees but which may extend to One Lac Rupees.
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