Transfer of Equity Shares: A Comprehensive Guide to the Procedure

Shareholders serve as the true owners of a company and appoint Directors to oversee its operations. The shares they hold represent their ownership percentage and can be freely transferred to other individuals or entities. This process of transferring shares also involves the transfer of ownership.

Understanding the Meaning of Transfer of Shares:

Transfer of shares refers to the voluntary transfer of rights and obligations associated with a member's share from a shareholder who no longer wishes to remain a member of the company to an individual seeking to become a member. Unless specified otherwise in the company's articles, shares in a company can be transferred like any other movable property.

Parties Involved in the Transfer of Shares:

Several parties are involved in the transfer of shares, including:

1. Subscribers to the Memorandum of Association (MOA)

2. Legal Representatives (LR) of the deceased

3. Transferee

4. Transferor

5. Company (Whether listed or unlisted)

Laws Governing the Transfer of Equity Shares:

The transfer of shares is governed by Section 56 of the Companies Act 2013, which declares securities as movable property that can be transferred according to the provisions outlined in the Articles of Association. Additionally, Rule 11 of the Companies (Share Capital and Debentures) Rules 2020, along with the Model AOA in Table F of Schedule I, also serve as guiding laws for this process. It's important to note that only shareholders of registered public limited companies possess the right to transfer their shares, whereas shareholders of private limited companies do not enjoy this privilege.

Required Documents for the Transfer of Equity Shares:

To initiate the transfer of equity shares, the following documents are necessary:

1. Notice sent by the Transferor to the Company

2. Board Resolution (BR) passed for considering the Notice

3. Letter of Offer provided by the Company to its Existing Shareholders

4. Dissent Letter from the Existing Shareholder

5. Share Transfer Deed in MCA Form SH 4 with paid Stamp Duty

6. Share Certificates

7. Board Resolution (BR) passed for registering the Transfer of Shares

Procedure for the Transfer of Shares as per the Companies Act, 2013:

The transfer of shares should follow the prescribed procedure as per the Companies Act, 2013. The steps involved are as follows:

1. Obtain the transfer deed in Form SH-4, duly endorsed by the authorized entity.

2. Note that in specific cases, the transfer instrument need not be in Form SH-4, such as when a director or nominee transfers shares on behalf of another body corporate, or when shares are transferred as a deposit for loan or advances made with specified entities or institutions.

3. Acquire essential documents, including the Articles of Association, trust deed (in the case of debentures), and the transfer deed, registered either by the transferor and the transferee or on their behalf.

4. Pay the required stamp duty as per the Indian Stamp Act and the respective state's stamp duty notification.

5. Ensure the cancellation of the stamp affixed on the transfer deed before or at the time of signing.

6. In the presence of the transferor and transferee, the share/debenture transfer deed should be signed by the person who approves the transfer.

7. Attach the relevant share/debenture certificate or allotment letter with the transfer deed and submit them to the company.

8. If the shares are partly paid, the company must notify the transferee of the amount due, and a no objection from the transferee is required within two weeks from receiving the notice.

9. In case of a lost signed transfer deed, affix a value stamp on a written application. The board may register the transfer after due consideration of specific indemnity terms.

10. If the company's shares are listed on a recognized stock exchange, no fee can be charged for the registration of share and debenture transfers.

Provisions Relating to Stamp Duty:

According to the Companies Act, 2013, the seller of the shares must pay the necessary stamp duty for the transferability of shares.

Issuing Share Transfer Certificate:

Upon receiving the share transfer agreement or certificate, the company must issue the share transfer certificates within one month, unless a court order or instruction from other authorities prevents it.

Time Limit and Penalties for Non-Compliance:

The company must deliver all share transfer certificates within one month from the receipt of the transfer agreement or certificate. Failure to comply with the provisions related to the transfer of shares can result in fines for the company, ranging from INR 25,000 to INR 500,000, and the officers in default can be fined between INR 10,000 to INR 100,000.

Conclusion:

In conclusion, the transfer of securities, particularly equity shares, involves voluntarily relinquishing share ownership and returning the shares to the company. The Companies Act 2013 governs this process, primarily Section 56, which allows for the free transfer of shares subject to the Articles of Association. Public companies have the right to transfer shares, while private limited companies do not possess this privilege.

For any queries or assistance regarding the transfer of equity shares, please reach out to The Tax Heaven. Our team of experts will provide lucid explanations and guide you through the transfer process.