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Transfer of Shares

Overview

Welcome to Compliance Calendar LLP: Your Trusted Partner for Transfer and Transmission of Shares. We understand that the transfer and transmission of shares is a critical aspect of corporate governance. Whether you are a company looking to facilitate the transfer of shares between shareholders or a shareholder undergoing a transmission process due to inheritance or other circumstances, our experienced team is here to assist you. As a leading legal and compliance firm, we specialize in handling secretarial assignments, including seamless and compliant transfer and transmission of shares.

WHY CHOOSE COMPLIANCE CALENDAR LLP?

Expertise and Experience: With years of experience in the legal and compliance industry, our dedicated team has extensive knowledge and expertise in managing the transfer and transmission of shares as we stay updated with the latest regulations and ensure that all procedures are carried out in accordance with applicable laws under the Companies Act, 2013 and related rules framed thereunder.

Comprehensive Solutions: Our Compliance Manager offer end-to-end solutions for the transfer and transmission of shares, providing a hassle-free experience for our clients. From document preparation and verification to liaising with regulatory authorities, we handle all aspects of the process, allowing you to focus on your core business activities.

Customized Approach: We understand that every company and shareholder have unique requirements. Our compliance team takes the time to understand your specific needs and tailors our services accordingly. Whether you require assistance with share transfers within your company or transmission of shares due to unforeseen circumstances, we provide personalized solutions that meet your individual needs.

Strict Compliance: Compliance is at the heart of everything we do at Compliance Calendar LLP. Our Compliance Manager ensure that all transfer and transmission procedures comply with the Companies Act, applicable rules, and regulations. Our meticulous approach ensures accuracy and minimizes the risk of legal complications or delays.

CCL TRANSFER AND TRANSMISSION SERVICES:

Share Transfer within Companies: We assist companies in facilitating the transfer of shares between existing shareholders. Our compliance team ensures that all necessary documents, such as share transfer deeds and share certificates, are prepared accurately and filed with the relevant authorities. We handle the entire process, from share transfer documentation to updating the company's records.

Transmission of Shares: In cases of transmission due to inheritance, death, or other circumstances, we guide shareholders through the legal requirements and procedures. We help prepare the necessary documents, including transmission applications, affidavits, and indemnity bonds, and assist in obtaining the required approvals and clearances from regulatory authorities.

Documentation and Compliance: Our compliance team takes care of the documentation and compliance requirements related to share transfers and transmissions. We ensure that all necessary forms, resolutions, and filings are completed accurately and submitted within the prescribed timelines.

Liaison with Regulatory Authorities: We act as a liaison between your company and regulatory authorities, such as the Registrar of Companies and stock exchanges. Our team handles all communication, coordination, and follow-up, ensuring a smooth and efficient process.

GET STARTED TODAY:

Don't let the complexities of share transfer and transmission hinder your company's growth or create unnecessary challenges for shareholders. Contact Compliance Calendar LLP today to benefit from our expertise and comprehensive solutions. Our dedicated team is ready to assist you in navigating the transfer and transmission process, ensuring compliance and peace of mind. Let us handle your secretarial assignments, while you focus on building a successful business.

LEGAL GENESIS ON TRANSFER/ TRANSMISSION OF SHARES

Transfer of ownership is possible by transfer of shareholding or Share by any person or group of persons in favour of another person or group of persons. In India as well as outside India, companies run by share capital funds either corporates or small business enterprises. Shares are defined under the Companies Act 2013 Section 2 (84) "share" means a share in the share capital of a company and includes stock. Shares are like any other goods. A purchaser gets no better title than the seller. Share Transfer is a statutory Right in India and regulated by its Article of Association.

WHAT IS SHARE TRANSFER?

Transfer of shares is a transaction resulting in a change of share ownership. A shareholder, whether in public or private company, has a property in his share which he has a right to dispose of, subject only to any express restriction which may be found in the articles of the company.

Are Shareholders and Members same or different?

Normally, it is considered that every shareholder is a member, and every member is a shareholder. However, it may be possible that a person may be a holder of share by transfer but would not become member until the transfer is registered in the books of company in his favour and his name is entered in the register of members (MGT-1) under the Companies Act 2013. In the same way, a member who has transferred his shares, though he does not hold any shares continues to be member of the company until the transfer is registered and his name is removed from the register of members maintained by the company under section 88 of the Companies Act, 2013.

A person holding equity shares of a company and whose name is entered in the records of a depository as a beneficial owner of the share is deemed to be a member of the company and when he desires to transfer the share to another person he can do so.

SHARES IN A PRIVATE LIMITED AND PUBLIC COMPANY

A private limited company is a limited company incorporated under the Companies Act, 2013 (or any one of its predecessor acts), with an article that restricts the transfer of its shares. With restrictions on transfer of shares, and limited number of members, a private limited company enjoys greater flexibility, less legal formalities, and the small shareholders body facilitates prompt decisions.
A public limited company must have at least seven members and its name end with “Limited” (abbreviated as – ‘Ltd.’). Subject to the provisions of the Companies Act, 2013, the shares issued by them are freely transferable and it can raise public deposits.

BASIC CONDITIONS BEFORE TRANSFER DEPEND UPON-

Two important elements or factor or conditions must be required before a person can acquire membership of a company-

agreement in writing to become a member; and
entry of the name of the person, in the register of members of the company

Documents Required for Transfer of Shares

When initiating the process of share transfer or share transmission, certain documents are typically required. While the specific documentation may vary depending on case to case basis and individual circumstances, here are some common documents often requested:

SHARE TRANSFER:

Share Transfer Deed: A share transfer deed is a legal document that facilitates the transfer of shares from the transferor (existing shareholder) to the transferee (new shareholder). The deed includes details such as the names of the transferor and transferee, the number and class of shares being transferred, and the consideration (if any) for the transfer.

Share Certificate: The original share certificate or a copy of it should be provided by the transferor, as it serves as evidence of ownership. This document will need to be endorsed or canceled upon the completion of the share transfer.

Letter of Request: A letter of request from the transferor to the company, formally stating their intention to transfer shares, is typically required. The letter should include details such as the names of the transferor and transferee, the number and class of shares to be transferred, and any specific instructions related to the transfer process.

Board Resolution: In the case of share transfer by a company, a board resolution is necessary. This resolution authorizes the transfer of shares and should be prepared and signed by the board of directors.

Identity and Address Proof: Both the transferor and transferee are usually required to provide copies of their identity and address proofs. These can include passport copies, driver's licenses, Aadhaar cards, or other government-issued identification documents.

Stamp Duty Payment: Stamp duty may be applicable on the share transfer, depending on the jurisdiction. Payment of the appropriate stamp duty should be made, and the stamped share transfer deed should be submitted along with the other documents.

SHARE TRANSMISSION:

Transmission Application: A transmission application is filed by the legal heirs or representatives of a deceased shareholder to request the transmission of shares. The application should include details such as the name of the deceased shareholder, their date of death, the relationship of the applicant to the deceased shareholder, and the requested transmission details.

Death Certificate: A certified copy of the death certificate of the deceased shareholder is required as proof of their demise. This document should be obtained from the relevant government authority.

Succession Certificate or Probate: Depending on the jurisdiction and the value of the shares being transmitted, a succession certificate or probate may be required. These legal documents establish the rights of the legal heirs or representatives and authorize them to claim the shares of the deceased shareholder.

Affidavit and Indemnity Bond: In some cases, an affidavit and indemnity bond may be required. These documents confirm the legal heirs' consent to the transmission and indemnify the company against any potential claims related to the transmission.

Identity and Address Proof: The legal heirs or representatives seeking the transmission of shares should provide copies of their identity and address proofs, similar to the requirements for share transfers.

Board Resolution or Shareholder Resolution: Depending on the company's internal procedures, a board resolution or shareholder resolution may be necessary to approve the transmission of shares.

Bonus Points: It is important to note that the specific documents and requirements may vary based on the jurisdiction and the unique circumstances surrounding the share transfer or transmission. It is advisable to consult with compliance professionals/ company secretaries at Compliance Calendar LLP to ensure compliance with the specific regulations applicable to your situation.

Legal Procedures of Transfer of Shares

Step 1 – Give a notice in writing to convey intention to transfer the share to the Company

Transferor(s) and/or Transferee(s) need to intimate to the company for desire of transfer shares and after receipt of such notice, the company has to notify the other members regarding the availability of such shares and the price as determined by the directors or the auditors of the company.

Step 2 – Drafting & Execution of Transfer Deed and Shareholders Agreement

Transferor(s) and/or Transferee(s) need to execute the instrument of transfer as per Rule 11 of the Companies Act 2013 in "Form SH-4". Shareholders agreement shall also be executed along with all terms & conditions specified regarding transfer from one to another. The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name, and address.

Step 3 – Payment of Stamp Duty on SH-4

The Stamp duty is payable “by the person drawing, making or executing such instrument” SH-4. As regards stamp duty, it is not disputed that there was no previous talk between the parties on this point, though ordinarily and as a matter of law in case of transfer of shares, it is the vendor by whom the stamp duty is payable.

Transfer Deed should be duly stamped as per Indian Stamp Act, 1899 with stamp duty (currently 0.015%) paid on market value or consideration amount, whichever is higher. But, in some state’s duty is payable in form of franking of transfer deed. For this transfer deed along with a letter addressed to the Additional Collector (Stamps) is to be submitted to General Stamp Office. A court fees of Rupees five is also to be paid and do not forget to cancel the stamps affixed at the time or before signing of the transfer deed. The transferor is responsible to affix and cancel the stamps.

Step 4 – Issue or Endorsement of Share Certificate (SH-1)

Share Certificate in the format of SH-1 (as specified at very first time in the Companies Act 2013) must be issued to the transferee within one month from the receipt of Share Transfer Instrument called SH-4 by the Company.

If the original share certificate has been lost, the shareholder needs to lodge FIR for the loss of share certificate. Such letter should contain all details available with the shareholder pertaining to his shareholding and the respective share certificate. A copy of such letter and FIR should be duly deposited with the concerned company.

Step-5: Submit the documents to company

Transfer Deed along with original share certificate must be lodged with the company, or if no such share certificate exists then a letter of allotment must be lodged with the company along with the instrument of transfer.

Step 6 – Hold Board meeting and pass the Resolution

On receipt of documents under step 5 the company shall duly hold a board meeting as per Section 173 for approving the share transfer and pass appropriate resolution to the said effect. The Company shall also be guided by its Articles as to the requirement of holding a Board Meeting.

In case of a company, where a Share Transfer Committee/Committee of Directors (refer the Terms of Reference), has been duly constituted, the said transfer shall first be approved by the said committee of the Board and thereafter sent for final approval to the maim Board.

Step-7: Make necessary entry in the Register of transfer in the record of the Company

Entries in the register constitute prima facie evidence of the particulars entered therein. As such, the register should be updated once change in the ownership of shares occurs by transfer or if any change in any other particulars to be entered in the register is intimated to the company.

Entries in the register should be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose, by appending his signature to each entry.

Step 8 - Refusal or Acceptance of Transfer by Board

As per Section 58 of the Companies Act 2013 and Articles of Association the Board has the power to reject the transfer of shares.

The private company may refuse to register the transfer in this case and send notice to the Transferor/ Transferee/ person giving intimation within 30 days from the date when instrument of transfer was delivered to the company, stating reasons for refusal or Acceptance If the company accepts and registers the transfer then it shall issue Share Certificate within one month from the date of receipt of instrument of transfer in the name of Transferee and shall make necessary changes in the Register of Members.

Step 9 – Reporting to ROC in form MGT-7 through Annual Compliance

There is no such notice or intimation required to be given to Registrar of Companies. However, the Share Transfer details shall be given to Registrar of Companies (ROC) in Annual Return Compliance of the company in Form MGT-7/7A for transferring the partly paid up shares of a company which are not held in electronic form. Company can attach Transfer details along with the list of Shareholders in the form itself.

Features & Benefits of Transfer of Shares

Section 56 of Companies Act, 2013 and Sub-Rule (1) Of Rule 11 of Companies (Share Capital And Debentures) Rules, 2014 deals with the share Transfer in the Company. A Company having share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository. An instrument of transfer of securities held in physical form shall be file in Form No. SH-4. In case of Listed Company more provision needs to comply under-

SEBI Circular CIR/MIRSD/10/2013 dated October 28, 2013
NDSL/CDSL Bye Laws with respect to the transfer and transmission of shares

A company shall not register a transfer of partly paid shares, unless the company has given a notice in Form No. SH.5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of receipt of notice.

POST COMPLIANCE AFTER TRANSFER OF SHARES-

Every instrument with the date of its execution specified thereon shall be delivered to the company within sixty days from the date of such execution;
Where the instrument has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit;
Issue of Share Certificate or Endorsement of Shares; and
Entry in the Register of Transfer

MAINTENANCE OF REGISTER OF SHARE TRANSFER BY THE COMPANY

Every company should, from the date of its registration, maintain a register of share transfers and enter therein particulars of every share transferred. The register is not open for inspection by anyone. The register should be preserved permanently and should be kept in the custody of the secretary of the company, or any other person authorized by the Board for the purpose.

REGISTER OF SHARE TRANSFER SHOULD CONTAIN BELOW PARTICULARS:

Transfer serial number;
Date of lodgment of transfer deed;
Total number of shares to be transferred;
Consideration;
Transferor’s name and folio number;
Certificate number(s);
Distinctive numbers;
Transferee’s name and folio number, address, occupation, father’s/husband’s name;
Value of stamp duty paid;
Date of board / committee resolution approving transfer;
New certificate number, if any;
Date of dispatch of the certificate(s).

DUE DILIGENCE ON REGISTER OF TRANSFER WHETHER:

The company has maintained separate register of transfers for different classes of shares/debentures, and entered therein the particulars relating to the registration of transfer of shares/ debentures;
Transfer number as per the register of transfer and date of approval has been entered in the Share Transfer Deed(SH-4);
The Company has maintained a separate file of documents like Powers of Attorney, Probate, Letters of Administration and/or Succession Certificate, Resolution of companies or other bodies corporate authorising any particular person(s) to sign on its behalf that are registered with the company; and
Details of nomination forms have been noted if any.

Frequently Asked Questions (FAQs)

How much time will take in whole process for execution?

If all documents are available by both the parties (Transferor and Transferee), it can be completed within a week time. Board meeting time is not included which is subject to the board approval.

Without Execution of Transfer Deed (SH-4), is transfer Valid?

Where a resolution was passed expelling a member and authorizing the director to register the transfer of his shares without an instrument of transfer, the resolution was held to be invalid as being against the provisions of the Act [Madhava Ramachandra Kamath v. Canara Banking Corporation [1941] 11 Com Cases 78 (Mad)].

Transferability of Shares in the Indian Companies

The capital of a company is divided into parts, called shares. The shares are said to be movable property and subject to certain conditions as contained in the Companies Act and/or the Memorandum and Articles of Association of the company, the shares of a company are a transferable property. In the case of a private company, the Companies Act requires it to put certain restrictions on the transferability of shares. Every member owning fully paid shares is at liberty to dispose of them off according to his choice but subject to the Articles of Association of the company. In the case of a public company, the shares are freely transferable.

Is transfer of Share applicable to Government Company?

Provisions of Sub Section 1 of Section 56 (Transfer of Shares) are not applicable on Government Company in respect of Securities held by nominees of the Government. The requirement of execution of an instrument of transfer (SH-4) and delivering the same to the company has also been done away with in case of transfer of securities held between nominees of the Government.

What is the format of Share Certificate under Companies Act 2013?

As per Rule 5(2) of the Companies (Share Capital and Debentures) Rules, 2014 share certificate is required to be in Form SH-1. The rule prescribed that such format should be in Form SH-1 or as near thereto.

Who can into a Contract or be a member?

The person desirous of becoming a member of a company must have the legal capacity of entering into an agreement in accordance with the provisions of Section 11 of the Indian Contract Act, 1872.
“Every person is competent to contract, who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”
It is abundantly clear that no one can become a member unless he has agreed in writing to become a member of the company. In case of Share transfer by executing an instrument of transfer of shares as transferee can be a Member in the Company.

After death of any member, how shares can be transferred?

In case of death, transmission of shares needs to be done. The legal representative of a deceased member can transfer any security or interest owned by the deceased member, even though he himself is not a holder of the said security or interest. A succession certificate may also be required in this case.

What is the penal provision and punishment for non-compliance?

Where any default is made in complying with the provisions of sub-section (1) to (5), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
Any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months, but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.
Where fraud involves public interest, the term of imprisonment shall not be less than three years.

How much Stamp duty or fees need to pay on Share transfer Deed(SH-4)?

Who is liable to pay duty on transfer of shares?

The Stamp duty is payable “by the person drawing, making or executing such instrument” SH-4.

Is MGT-14 required to be filed with the ROC for submission of documents or approval?

No. It is not a legal requirement in case of share transfer. However, Company optionally may file the form MGT-14 for their record of Transfer of share in ROC data.

In case of Transfer, Is Valuation of shares required?

As per the pre-emption clause in the Articles, shares are to be offered to other members at a price certified by the directors or auditors.
If the valuer has in fact acted negligently and failed to account for all the necessary factors for arriving at the value of shares, the transferor has the right to institute legal proceedings against such valuer for any damages caused due to improper valuation of shares.

What are the compliances for Transfer of shares by a Person resident outside India

a. Non-Resident to Non-Resident (Sale / Gift): A person resident outside India (other than NRI and OCB) may transfer by way of sale or gift shares or convertible debentures to any person resident outside India (including NRIs but excluding OCBs).

Note: Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.
b. NRI to NRI (Sale / Gift): NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.
c. Non Resident to Resident(Sale / Gift):
(i) Gift: A person resident outside India can transfer any security to a person resident in India by way of gift.
(ii) Sale under private arrangement: General permission is also available for transfer of shares / convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India in case where transfer of shares are under SEBI regulations and where the FEMA pricing guidelines are not met, subject to the following
a. The original and resultant investment comply with the extant FDI policy/ FEMA regulations;
b. The pricing complies with the relevant SEBI regulations (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI (SAST) and buy back); and
c. CA certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to befiled with the AD bank.
d. Compliance with reporting and other guidelines as given in Annex 3.
Note: Transfer of shares from a Non Resident to Resident other than under SEBI regulations and where the FEMA pricing guidelines are not met would require the prior approval of the Reserve Bank of India.
(iii) Sale of shares/ convertible debentures on the Stock Exchange by person resident outside India: A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stockbroker registered with stock exchange or a merchant banker registered with SEBI.

What are the compliances for Transfer of shares from Resident to Person Resident outside India?

A person resident in India can transfer by way of sale, shares / convertible debentures (including transfer of subscriber's shares), of an Indian company under private arrangement to a person resident outside India, subject to the following along with pricing, reporting and other guidelines given in Annex - 3.
a) where the transfer of shares requires the prior approval of the FIPB as per extant FDI policy provided that;
i) the requisite FIPB approval has been obtained; and
ii) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.
b) where SEBI (SAST) guidelines are attracted subject to adherence with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.
c) where the pricing guidelines under FEMA,1999 are not met provided that:
i) the resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization,etc.),reporting requirements, documentation, etc.;
ii) The pricing for the transaction is compliant with specific/explicit , extant and relevant SEBI regulations(such as IPO, book building, block deals, delisting, open/ exit offer,substantial acquisition/SEBI(SAST); and
iv) CA Certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to be filed with the AD bank.
d) where the investee company is in the financial services sector 9 provided that:
i). No Objection Certificates (NOCs) are obtained from the respective regulators/regulators of the investee company as well as the transferor and transferee entities and such NOCs are filed along with the Form FC-TRS with the AD bank; and
ii). The FDI policy and FEMA Regulations in terms of sectoral caps, conditionalities(such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.
Note: The above general permission also covers transfer by a resident to a non-resident of shares / convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route of the Reserve Bank, as well as transfer of shares by a non-resident to an Indian company under buyback and / or capital reduction scheme of the company. However, this general permission would not be available for the above transactions if they are not meeting the pricing guidelines or in case of transfer of shares / debentures by way of gift from a Resident to a Non-Resident / Non-Resident Indian

In which cases prior permission of the Reserve Bank in certain cases for acquisition / transfer of security if Shares are held or sale or purchase by Foreign resident or corporate required?

Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration.
Further, if approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.

What is the difference between Issue of Share Certificate and Endorsement of Share Certificate?

The issue of a share certificate refers to the initial issuance of a share certificate by a company to a shareholder, serving as proof of ownership. It establishes legal rights over the shares and includes details such as the shareholder's name, share class, and distinctive number. On the other hand, the endorsement of a share certificate involves transferring ownership from one shareholder to another by endorsing the back of the existing certificate. It signifies the intent to transfer ownership but does not result in the issuance of a new share certificate. Additional steps, such as executing a share transfer deed, are required to complete the transfer process and issue a new share certificate in the name of the new shareholder.

What details are required for the Share Certificate?

As per the format of the share certificate i.e. Form SH-1, the following details are required:

On the front of the Share Certificate

Name of the company;
Corporate identity number;
Address of the registered office;
Nominal value per share;
Amount paid-up per share;
Register Folio Number;
Certificate Number;
Name of the holders (including the joint holders);
Number of share held in words and in number;
Distinctive numbers from to;
Date of issue of share certificate;
Signatory of directors and secretary/any other authorized person;

On the reverse (Opposite side) of the Share Certificate

Name of the Transferor;
Name of the Transferee;
Number of shares;
Date of share transfer;
Signature of the authorized signatory

Can Compliance Calendar LLP help in the secretarial compliance?

Yes, we have a team of compliance managers who can access the information and help you make the right compliance to improve the corporate governance of your company. For any query, reach out to info@ccoffice.in or connect at 9988424211.

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