Transfer of Membership Interest in a Company Not Having Share Capital: Use of Form SH-4 under Companies Act, 2013

Transfer of Membership Interest in a Company Not Having Share Capital: Use of Form SH-4 under Companies Act, 2013. In companies having share capital, ownership is generally represented through shares. However, in companies not having share capital, such as companies limited by guarantee, members do not hold shares. Instead, they hold a “membership interest” in the company.
 A common practical question is: how can such membership interest be transferred from one member to another?
The Ministry of Corporate Affairs has clarified that the transfer of interest of a member in a company not having share capital must be carried out through a proper instrument of transfer, and Form SH-4 is to be used for this purpose and the clarification is important for Section 8 companies and other companies limited by guarantee where membership changes are often handled informally.
Provisions under Section 56
Section 56 of the Companies Act, 2013 deals with transfer and transmission of securities. It specifically covers not only transfer of securities but also transfer of the interest of a member in a company having no share capital. The section provides that the company shall not register such transfer unless a proper instrument of transfer is duly stamped, dated, executed by or on behalf of both the transferor and transferee, and delivered to the company within sixty days from the date of execution. Accordingly, even though there are no shares, the transfer cannot be recorded merely through a simple request letter or internal note. A formal transfer instrument is required.
Applicability of Form SH-4
Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 prescribes Form SH-4 as the instrument of transfer for securities held in physical form. Rule 11(2) further clarifies that in case of a company not having share capital, the provisions shall apply as if references to “securities” are references to the interest of the member in the company.Hence, for a company limited by guarantee or a Section 8 company not having share capital, Form SH-4 should be used for transfer of membership interest.
Practical Procedure for Transfer of Member’s Interest
The company should generally follow the below procedure:

Check the Articles of Association/INC-31 in section 8 or INC-34 another cases: Before initiating the transfer, the company should review its Articles of Association, membership rules, eligibility criteria, and any restrictions on transfer of membership interest.

Prepare and execute Form SH-4: Form SH-4 should be executed by or on behalf of both the transferor and the transferee. In the form, references to “securities” should be read as references to the member’s interest in the company.

Stamping and dating of instrument: The instrument should be properly dated and stamped as applicable under the relevant stamp law. Since the transfer relates to membership interest and not shares, stamp duty should be checked carefully based on the nature of the instrument and local stamp law.

Delivery to the company within 60 days: The executed Form SH-4 should be delivered to the company within sixty days from the date of execution, along with supporting documents such as membership certificate or letter of admission, if any.

Board approval: The Board should consider the transfer request in accordance with the Articles of Association and approve or reject the transfer. If approved, the Board may pass a resolution for registration of the transferee as member.

Update Register of Members (MGT-1): After approval, the company should update its Register of Members (MGT-1) maintained under Section 88. For companies not having share capital, the register should contain prescribed particulars of each member.

Issue confirmation to transferee: The company may issue a confirmation letter, updated membership certificate, or other document evidencing the transferee’s admission as member, as per its Articles and internal records.

Reflect in annual filing (AOC-4 & MGT-7 Or 7A): The change in membership should be properly reflected in the company’s statutory records and annual return, wherever applicable.

Important Compliance 
MCA’s clarification removes the practical confusion that Form SH-4 is only for share transfer. In case of companies without share capital, Form SH-4 continues to be relevant, but the word “securities” should be understood as “interest of the member of the company”. ICSI’s June 2026 update also notes that MCA issued this clarification on May 8, 2026 and advised stakeholders to use Form SH-4 for transfer of interest of members in companies limited by guarantee.
Consequence of Non-Compliance
Non-compliance with Section 56 may attract penalty on the company and every officer in default. Section 56(6) provides for a penalty of Rs.50,000 where default is made in complying with the relevant provisions.
Therefore, Transfer of membership interest in a company not having share capital is not an informal process. Even where there are no shares, the company must follow Section 56 and Rule 11(2). The correct compliance approach is to execute Form SH-4, obtain necessary Board approval, update the Register of Members, and maintain complete statutory records.
For companies limited by guarantee, Section 8 companies, chambers, councils, associations, and other not-for-profit entities, this clarification is a useful reminder that membership changes must be documented with the same level of legal discipline as share transfers.
Learn Share Transfer - Procedure Involved, Time limits & Penalties in Limited by Shares company

In companies having share capital, ownership is generally represented through shares. However, in companies not having share capital, such as companies limited by guarantee, members do not hold shares. Instead, they hold a “membership interest” in the company.

A common practical question is: how can such membership interest be transferred from one member to another?

The Ministry of Corporate Affairs has clarified that the transfer of interest of a member in a company not having share capital must be carried out through a proper instrument of transfer, and Form SH-4 is to be used for this purpose and the clarification is important for Section 8 companies and other companies limited by guarantee where membership changes are often handled informally.

Provisions under Section 56

Section 56 of the Companies Act, 2013 deals with transfer and transmission of securities. It specifically covers not only transfer of securities but also transfer of the interest of a member in a company having no share capital. The section provides that the company shall not register such transfer unless a proper instrument of transfer is duly stamped, dated, executed by or on behalf of both the transferor and transferee, and delivered to the company within sixty days from the date of execution. Accordingly, even though there are no shares, the transfer cannot be recorded merely through a simple request letter or internal note. A formal transfer instrument is required.

Applicability of Form SH-4

Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 prescribes Form SH-4 as the instrument of transfer for securities held in physical form. Rule 11(2) further clarifies that in case of a company not having share capital, the provisions shall apply as if references to “securities” are references to the interest of the member in the company.Hence, for a company limited by guarantee or a Section 8 company not having share capital, Form SH-4 should be used for transfer of membership interest.

Practical Procedure for Transfer of Member’s Interest

The company should generally follow the below procedure:

Check the Articles of Association/INC-31 in section 8 or INC-34 another cases: Before initiating the transfer, the company should review its Articles of Association, membership rules, eligibility criteria, and any restrictions on transfer of membership interest.
Prepare and execute Form SH-4: Form SH-4 should be executed by or on behalf of both the transferor and the transferee. In the form, references to “securities” should be read as references to the member’s interest in the company.
Stamping and dating of instrument: The instrument should be properly dated and stamped as applicable under the relevant stamp law. Since the transfer relates to membership interest and not shares, stamp duty should be checked carefully based on the nature of the instrument and local stamp law.
Delivery to the company within 60 days: The executed Form SH-4 should be delivered to the company within sixty days from the date of execution, along with supporting documents such as membership certificate or letter of admission, if any.
Board approval: The Board should consider the transfer request in accordance with the Articles of Association and approve or reject the transfer. If approved, the Board may pass a resolution for registration of the transferee as member.
Update Register of Members (MGT-1): After approval, the company should update its Register of Members (MGT-1) maintained under Section 88. For companies not having share capital, the register should contain prescribed particulars of each member.
Issue confirmation to transferee: The company may issue a confirmation letter, updated membership certificate, or other document evidencing the transferee’s admission as member, as per its Articles and internal records.
Reflect in annual filing (AOC-4 & MGT-7 Or 7A): The change in membership should be properly reflected in the company’s statutory records and annual return, wherever applicable.

Important Compliance

MCA’s clarification removes the practical confusion that Form SH-4 is only for share transfer. In case of companies without share capital, Form SH-4 continues to be relevant, but the word “securities” should be understood as “interest of the member of the company”. ICSI’s June 2026 update also notes that MCA issued this clarification on May 8, 2026 and advised stakeholders to use Form SH-4 for transfer of interest of members in companies limited by guarantee.

Consequence of Non-Compliance

Non-compliance with Section 56 may attract penalty on the company and every officer in default. Section 56(6) provides for a penalty of Rs.50,000 where default is made in complying with the relevant provisions.

Therefore, Transfer of membership interest in a company not having share capital is not an informal process. Even where there are no shares, the company must follow Section 56 and Rule 11(2). The correct compliance approach is to execute Form SH-4, obtain necessary Board approval, update the Register of Members, and maintain complete statutory records.

For companies limited by guarantee, Section 8 companies, chambers, councils, associations, and other not-for-profit entities, this clarification is a useful reminder that membership changes must be documented with the same level of legal discipline as share transfers.

Learn Share Transfer - Procedure Involved, Time limits & Penalties in Limited by Shares company