Share Transfer Process in Private Limited Company

[Ishita Ramani]

Introduction

In a Private Limited Company, the shareholders are involved in deciding who owns the business. You must transfer the shares if you want to bring in new investors or change ownership during the course of your business. Today, we will look at the process of transferring shares in a Private Limited Company, as well as all the information on Transfer of Shares, the method of Transfer of Shares, and additional information on Share transfer in Private Limited Company.

What is a share transfer?

The voluntary transfer of ownership of a share from one party to another is referred to as a "share transfer." The ability to transfer a company's shares is generally unrestricted, however, Private Limited Company Shares may be subject to restrictions in the articles of incorporation.

Limitation on the transfer of shares imposed by the AOA

The directors may have the power to refuse to register a share transfer in certain situations as in the Articles of Association.

The company's auditor or director must make the shares available to other present shareholders of the Private Limited Company at a price they set if a shareholder decides to sell his shares. The share transfer process will be put on hold if that requirement is not met. The process described in the Articles of Association may also be used for calculating the share value. The company's shares may be freely transferred to a third party if none of the current owners are interested.

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Steps taken to start the Share Transfer Procedure

• The Articles of the Association of the Private Limited Company shall be reviewed and any restrictions therein shall be removed.
• The Company's Director must be informed in writing of your intent to transfer a share of the Company.
• Determine the price in accordance with the company's articles of formation, where the shares are sold first to the company's current shareholders.
• The company must then inform the other shareholders that shares are now available, together with the price and deadline for purchasing them.

Process for transfer of shares in a Private Limited Company

The first steps in the process of transfer of shares from the present shareholder to the new stakeholders are as follows:

• The notice is sent to the corporation by the transferor.
• Resolution of the Board evaluating the notification given to the corporation by the transferor.
• A letter of offer was given to the current shareholders by the corporation.
• The present stockholders have submitted a letter of disapproval.
• Stamp duty is reimbursed along with the SH-4 share transfer agreement.
• It is advisable to distribute certificates.
• The board of directors decided document the transfer of shares.

To proceed with the transfer of shares, follow these steps:

• Get a share transfer deed that complies with the rules.
• Complete the share transfer agreement by having both the Transferor and the Transferee sign it.
• Share transfer deeds must be stamped in line with the Indian Stamp Act and the State's Stamp Duty Notification.
• The share transfer deed should be witnessed, and the witness should sign it with their name, address, and signature.
• Send the transfer deed and the share certificate or allocation letter to the company.
• Once the documentation has been reviewed and approved, the corporation will issue a new share certificate in the transferee's name.

To open a private limited company in India, you need to choose a name, get DSCs for directors, apply for DINs, file MoA and AOA, get PAN and TIN, and open a bank account. The entire process takes around 10 days. You can hire a lawyer or company formation agent to help you with the paperwork.

Summary

The share transfer process won't be finished unless the transfer is registered by the corporation. The company is required to send the share certificate to the transferee within one month of registration. Shareholders in a public limited company can transfer their shares easily and without restriction, whereas the transferability of shares in a private limited company is entirely achieved by according to the rules specified in AOA.

Discussions to this article

[narasimha sarma]

More often than not, in Courts of law/Tribunals, the contentious issue is related to the rectification of register of members of the company. The parties cite the provisions of section 59 to seek the rectification jurisdiction of the Court/tribunals. The combined effect of the modes and manner of a person becoming a member (By Allotment, By Transfer / Transmission) to invoke the declaratory/adjudicatory/rectificatory jurisdiction of the Courts/Tribunals may be elaborated further for better understanding of the readers/practioneers of corporate law.