What is share as per the Companies Act, 2013?

According to the Companies Act, 2013 "share" generally means a share in the share capital of a particular company and involves stock. A share is a smaller unit of capital, governing the ownership relationship between the company and its shareholder.

What is transfer of shares?

• A share transfer is a way of transferring existing shares, its concerning rights and liabilities from one person to another person.

• A share can be transferred from only existing shares to its existing shareholders.

• Though the transferee may be an existing shareholder or not.

• It is the transfer of the rights and duties of a member of the company to any other person who desires to become a member of the company.

• It is an act of a member that is accustomed as per the articles mentioned in the AOA of the company.

Who is allowed to transfer Shares?

• Legal Representatives of a deceased person in case of death or situation of insolvency the concerned person

• Subscribers to the Company Memorandum

• Transferor of company

• Transferee of company

• Listed as well as Unlisted Company

Which section governs the Transfer of Shares?

As per Section 56 of the CA, 2013[1], securities are free property and are transferred in a manner stated by the articles mentioned in the AOA of the company.

A Shareholder is allowed to transfer shares to a person of one's own choice, whereas Private Limited company shares are restricted.

Procedure for Transfer of Shares

• Firstly, the deeds which need to be moved need to be obtained in the E-form SH-4.

• There are certain situations in which the instrument of transfer need not be in the prescribed form. These are: 

  • Section 187 of the CA, 2013, when a Director or nominee transfers shares on beneath of other body incorporate.

  • When the Director or nominee moves shares in favour of a corporation owned or controlled by the Central or state government.

  • Shares moved by way of deposit for repayment of such loan or advance if the deposit is made with any of the given banks:

  • State Bank of India

  • Any Scheduled bank

  • Any other Banking Company

  • Financial Institution

  • Central Government

  • Any Corporation held by the Central or State Government. Government

  • State Government

  • Trustees

• According to the laws of the CA 2013, one should get AOA in situations of shares, trust deed in situations of Debentures where the transfer deed is incorporated either by the transferor or the transferee.

• According to the laws of the Indian Stamp Act, the transfer deed compulsory needs to have stamps. The stamp tax rate of transferring share is twenty-five subunits for each ten thousand rupees of the worth of the share.

• The Stamp duty on the transfer deed is checked to ensure whether it is cancelled after the prescribed time or before the signing of the transfer deed.

• The individual who has given his sign, name, and address for approval of transfer must certify that the transferor and transferee have signed the share/ debentures transfer deed.

• The prescribed share or debenture certificate or Letter of allotment, together with the transfer deed, should be attached and dispatched to the company.

• If the application is formed by the transferor for partly paid shares, the company has to notify the amount pending on shares/ debentures of the transferee. Together with this, a no Objection Certificate (NOC)is needed two weeks from the receipt date.

• A similar value stamp is affixed on the written application in situations of the signed transfer deed has been lost. Here, the Board shall register the transfer based on indemnity.

• If the shares of the company are listed in a recognized stock exchange, in such case the company cannot charge any payment for the incorporation of transfer of shares and debentures.

Time Limits

A company need not register the transfer of securities of the company other than that of the beneficial owners without a prescribed instrument of transfer. The prescribed time is 60 days from the execution date.

Application by the transferor: The transfer need not be registered till the company gives notice of the application to the transferor. Here, the transferee gives NOC (No Objection Certificate) in two weeks from the notice receipt.

Transmission of Securities

Transmission of Securities is distinct from the Transfer of Securities, but most of us think these two terms the similar. In the case of transmission of shares, the shares are transferred to the deceased and the official assignee of the insolvent.

Transmission of shares is a prescribed process when the shareholder died and his shares are immediately transferred to his representative or when a member is declared bankrupt.

Basic Procedure for the Transmission of Share

Given steps should be followed for the Share transmission:

• In the situation of joint holding or legal heir, the survivor who needs to transmission by operation of law has to apply with the company. Prescribed documents like Death certificate, succession Certificate, probate, etc. need to be attached along with the application.

• Thereafter, the company records the information regarding the death certificate, and a reference number for the recording of information is given to the shareholder.

• After the documents are submitted, the company reviews the documents and pass the transmission request in case the documents are correct.

• In case the documents submitted along with the transmission request are not correct, the company should communicate refusal of same to the concerned person in 30 days.

• Before the death of the shareholder, the dividend declared will be transferable to the legal representative, and in case after the death of the shareholder, the dividend shall be transferable to him only after the registration of his/her name.

• Implementation of transfer deed isn't mandatory for transmission of shares. Application of transmission together with prescribed documents ought to be enough for the request of valid transmission.

• Probate: If a member of a company left after him/her a letter of administration or a will then after his death the survivors should get a copy of 'will' which is certified by the competent Courts of jurisdiction seal. Thus, this is called a 'probate'. There is no wantfor a Succession certificate once the letter of administration and probate is there.

Compliance checklist for transfer of share

• Declaration of notice in draft for this purpose to transfer his share to the organisation.

• Get the share transfer agreement in form SH-4 duly performed by each transferee and also the transferer.

• Form SH-4 ought to be properly marked and recorded.

• The period for the protection of devices for transfer with the firm ought to be notified.

• Amount of share transfer stamps to be connected on the transfer agreement

• Share certificate or document and letter of distribution

• Board resolution

• Delegation of authority

• Distribution of the share certificate of transfer

Delivery of Share Certificates

Companies are mandatorily required to deliver the share certificate of all securities allotted, transferred or transmitted:

• In 2 months from the date of incorporation, in the case of subscribers to the memorandum;

• In 2 months from the date of allotment, in the situation of allocation of its shares;

• In 1 month from the date of receipt by the company for the transfer and transmission

• In 6 months from the date of allotment in case of debenture allotment.

Meanwhile, where the securities are transferred through a depository; the company will intimate the details of securities allotment to the depository on allotment of given securities

How to Transfer Shares of a private company

The subsequent steps should be followed for the transfer of shares:

Step 1: get the share transfer deed within the prescribed format.

Step 2: Prepare the share transfer deed properly signed by the transferer and Transferee.

Step 3: Stamp the share transfer deed as per the Indian Stamp Act and taxation Notification apply within the State.

Step 4: A witness must sign the share transfer deed along with his/her signature, name and address.

Step 5: Attach the share certificate or allotment letter with the transfer deed and deliver that to the company.

Step 6: The company should check the documents and approve them, issue a fresh share certificate in the name of the transferee.

Penalties

There is a penalty of at least Rs 25000 and the highest of Rs 5 lakh in the case of a company. And for an officer, the penalty is at least Rs 10000 and a maximum of Rs 100000

FAQs on transfer and transmission of shares –

Q. I have purchased the Company's shares; how do I get shares registered in my name and in how much time?

A. You will need to send the share certificates and also the Share Transfer Deed (in form SH-1) filled in, created and affixed with share transfer stamps at 0.25% of the value on the date of execution of the transfer deed.

Q. I would prefer to gift some shares to my children/relatives. how do I get shares registered in their names? Will this attract stamp duty?

The procedure for registering shares is the same as that of ordinary share transfer.  the stamp duty is at 0.25% of the value prevailing on the date of execution of the transfer deed

Q. How do I make sure that the Transfer Deed is complete before dispatching it to the Company?

Transfer Deed involves transferor's details like folio no, certificat9e no, distinctive number, name of the holder(s), name and address of witnesses. Please conjointly make sure that the Transfer Deed is signed by the transferor(s) (signatures of all holders just in case of joint holding) and also the witness. Please note that attestation of transferer's signature by a manager of a nationalized bank wherever the transferor holds a bank account can minimize the possibilities of rejection of transfer request on account of signature pair. Please fill altogether the columns of the transfer deed, sign as transferee at applicable places and affix share transfer stamps at 0.25% of the value on the date of execution of the transfer deed. Please make sure that the transfer deed is duly stuffed in and executed as explained, to avoid any discrepancy/objection on lodgement.

Q. How do I build a nomination concerns my shareholding?

Request for nomination on shares together with the Nomination form (in form SH13- Annexure- B) to be sent to the Registrars & Share transfer agency by shareholders holding shares in physical form. Shareholders holding shares in dematerialized form ought to approach their Depository Participant concerns relating to the nomination.

Conclusion

Transfer and transmission of Securities are two distinct things that are frequently confused by the general people. Moreover, the transfer of shares is more popular than that of the transmission of shares.

Compliance Calendar LLP is a team of dedicated professionals who help one in transfer or transmission of share of company and compliance related to it. If you have any questions, you can reach out to us at info@ccoffice.in or connect at 9988424211

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