How to transfer shares from one person to another?

One of the most important characteristic of a company is that its shares are movable property which means that its shares or securities are transferable. The Articles of association (AOA) of company provides the rules and regulations through which shares can be transferred from one person to another. Such transfer can take place only in the case of a public company as private company restrict the transfer of its shares in its AOA. In this article, we will discuss about the meaning, time limits and procedure of transfer of shares or securities in detail.

Concept of Transfer of Shares/Securities

Transfer of shares means handling the rights and duties of a member in a company to any other person who wish to become member of such company. This act of transferring the securities Is voluntary as per the rules contained in Articles of Association of Company. Hence, shares in a company are movable property and are transferable. The people involved in transfer of shares includes:

• Transferor
• Transferee
• Listed or Unlisted Company
• Subscribers to the Memorandum of Association (MOA) of the company
• Legal representative, in case of deceased or insolvent member

Law governing Transfer of Shares

• When there is no restriction in the Articles of a Company, its shares are freely transferable like any other movable property. Transfer of shares is governed as per the provisions of Companies Act, 2013.
• As per Section 56 of the Companies Act, transfer of shares or any other securities can take place only when a proper instrument of transfer of shares i.e share transfer form is filed in Form No. SH-4. Such form needs to be duly stamped with adequate amount and must be executed by the transferor and transferee. Along with it, both transferor and transferee needs to execute and sign share transfer agreement.

Documents Required for Transfer of Shares

The following documents need to be drafted and provided while transferring shares:

• A Notice by the transferor to the company intimating about the transfer
• Board Resolution for consideration of the notice by the transferor to the company
• Offer Letter by company to existing shareholder
• Form SH-4 including Share Transfer Deed along with stamp duty
• Share Certificates
• A Board resolution stating registration of transfer of shares.

Procedure of Transfer of Shares

The procedure for transfer of shares takes place as per the provisions of Companies Act , 2013 and Articles of Association of Company. The step by step process of transferring shares is as follows:

• First of all, transferor needs to give his intention of transferring shares in written form through notice
• After receiving such notice, company will notify other members regarding the availability of shares along with the price at which it will be available. Price of such shares is mostly determined by the auditors and directors of the company
• In case no member come forward to buy such share, then the company can offer such shares to outsiders also
• Obtain a transfer deed in the prescribed form i.e. SH-4 duly executed by the transferor and transferee.The transferor or the transferee needs to send Form SH-4 to the Company within 60 days from the date of execution of share transfer agreement including share transfer certificate.
• The transferor must provide the share certificates or letter of allotment to the company
• As soon as the company receives the share transfer deed, it will verify the deed and pass a board resolution regarding the acceptance of such deed in the Board Meeting of the Company
• Once the board resolution is passed, the name of the transferee will be entered in the register of members as beneficial owner of such shares.
• A share certificate of transfer will be issued by the company within one month of passing the board resolution endorsing the name of the transferee.

NOTE : According to the provisions of Companies Act, 2013, transferability of shares must be duly stamped and the stamp duty must be paid by the seller of shares

Important Timelines – Transfer of Shares

• A Company which is having share capital shall not register transfer of shares without a proper instrument of transfer within a period of 60 days from the date of execution
• A Company has to deliver all share certificates whether it is allotted for first time or get transferred or transmitted, within the following time limit.

Conclusion

Shareholders being the real owners of the company have multiple powers in the company. The shares they possess in the company are movable property and are freely transferable to any other person or entity. Hence, transferring of shares also results in transferring of ownership by the shareholder.

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