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Share Transfer Procedure
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Share transfer procedures in a private limited company involve a structured process for transferring share ownership from one individual to another. Shares represent ownership stakes in a company and can be bought, sold, or transferred. Unlike public companies, shares in a private limited company are not publicly traded but can be sold or transferred privately. To comply with ROC regulations for private limited companies, consult Corporate Shastra.
Share transfers in private limited companies in India are regulated by the Companies Act, 2013, and the guidelines set forth by the Ministry of Corporate Affairs (MCA). This article will outline the steps involved in transferring shares within a private limited company.
Share Transfer Procedure
The process of transferring shares in a Private Limited Company involves the following steps:
Step 1: Acquire Share Transfer Deed
To initiate the share transfer process, the first step is to obtain a Share Transfer Deed. This legal document facilitates the transfer of share ownership from the seller (transferor) to the buyer (transferee). The Share Transfer Deed must be duly executed, stamped, and signed in compliance with the Indian Stamp Act, 1899. It should include details such as the company's name, the number and class of shares being transferred, the names, addresses, and PAN of the transferor and transferee, the consideration for the transfer, and the date of execution.
Step 2: Obtain No Objection Certificate (NOC)
The transferor must acquire a No Objection Certificate (NOC) from the company within two months of executing the Share Transfer Deed. This certificate confirms that the company has no objections to the share transfer. The transferor needs to submit a written request along with the original share certificate, the Share Transfer Deed, and the required fee. Upon verification of the documents, the company will issue the NOC if no objections are raised.
Step 3: Submit Transfer Documents
Within 60 days of executing the Share Transfer Deed, the transferor should submit the Share Transfer Deed, original share certificate, and NOC to the company. The company will verify the documents, update its records to reflect the share transfer, and issue a new share certificate in the transferee's name.
Step 4: Obtain Board Approval
The company's board of directors will review the transfer request and approve or reject it based on the Articles of Association and relevant laws. If approved, the board will document the transfer in its minutes and update the shareholders' register.
Step 5: Pay Stamp Duty
The Share Transfer Deed is subject to stamp duty based on the applicable rates in the state. The stamp duty must be paid before submitting the transfer documents to the company.
Step 6: File Required Forms
The company must file necessary forms with the Registrar of Companies (RoC) within 30 days of the share transfer. These forms include Form SH-4 for share transfer and Form MGT-7 for annual returns.
How to Transfer Shares in a Private Limited Company
Share transfers in a Private Limited Company are subject to restrictions outlined in the company's Articles of Association (AOA), which must be consulted before initiating any share transfer process.
Limitations on Shareholders' Share Transfer Rights
Rights of Pre-emption: When a shareholder intends to sell their shares, they must first offer them to other current members at a price set by the Directors or the Company's Auditor. The valuation method is specified in the Articles of Association. If no existing shareholder expresses interest, the shares can then be transferred to an external party.
Directors' Authority to Decline: In accordance with the Articles of Association, a director may reject a share transfer to a third party. Directors hold the power to make decisions on share transfers in a Private Limited Company. Share Transfer Procedure for Private Limited Company
Only the restrictions specified in the Articles of Association are legally enforceable, and any private agreements among shareholders do not bind the company or the shareholders. Prohibiting or banning share transfers entirely is not permissible under the law.
Restrictions on Share Transfers
These are the required documents for share transfer in a Private Limited Company:
Share Transfer Deed: The essential document for share transfer, to be signed by both the transferor and transferee.
Share Certificate: The original share certificate, along with the share transfer deed, must be provided by the transferor.
PAN Card: A copy of the transferee's PAN Card is mandatory for share transfer.
Board Resolution: The Board of Directors must approve the share transfer and pass a resolution.
No Objection Certificate (NOC): A NOC from the transferor may be required to confirm no objection to the share transfer.
Indemnity Bond: An indemnity bond may need to be executed by the transferor to protect the company against potential losses from the share transfer.
Payment of Stamp Duty: Stamp duty must be paid on the share transfer deed as per the applicable state rate.
It is recommended to seek professional advice to ensure all necessary documents are in order and the share transfer process complies with laws. For assistance with share transfer and Company Incorporation, contact our team at Corporate Shastra.
Documents Required for Share Transfer in a Private Limited Company
In summary, the process of transferring shares in a private limited company entails various steps and regulatory requirements. Seeking professional advice and support is recommended to ensure adherence to the relevant laws and rules, thereby minimizing the risk of legal complications or disagreements. Engaging a company secretary or legal expert can facilitate a seamless and effective navigation through the share transfer procedure.
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