The shareholding of the company decides the ownership of an individual in the businesses that has the private limited company registration. The private limited company interest could be sold to attract new investors or to pass control of the company. In this article, we look at how shares of a private limited company can be transferred.

Share Transfer Limitations in AOA: A private limited company, like a Partnership company, is known to be a “closed organization” of shareholders. Therefore, the Articles of Association (AOA) may limit the transfer of shares to a Private Limited Company. The Articles of Association of the Company must also be checked before the action transfer process starts.

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The shareholders’ right to move shares is typically limited in two forms:

  1. Pre-emption rights: When a shareholder wishes to sell any or all of his securities, the securities must first be sold to the individual registered private limited partnership members at a price agreed by either the directors or the partnership auditor. The share value can be determined based on the formula/method stated in the Articles of Association. In the absence of any current shareholder, the company’s shares can be openly transferred to an outside group.
  2. Directors’ powers to deny: the Manager may have the authority to deny, under some conditions, the registration of the transfer of securities, provided for in the Articles of Association.

Only the restrictions found in the Articles are legally binding. Any private arrangement between the shareholders is not binding on the company or the shareholders either. Therefore, only the Articles of Association can limit the transfer of shares. The right to transfer shares in a private limited company cannot be a full restriction on or prohibition of the transferability of shares.

Share Transfer Procedure Initiation

Private limited partnership ownership allocation process

The following steps must be followed to initiate the share transfer procedure:

Step 1: AOA revision: the Private Limited Company’s articles of association must be checked and limitations discussed.

Step 2: The shareholder will give the Company’s Manager a written notice of intent to move the company’s share.

Step 3: determine the price according to the Articles of Association, where the company’s shares would be sold first to its current shareholders. (This price is usually decided by the Company Directors or by the Company Auditor.)

Step 4: The company will then inform the other shareholders of the share availability and the final date of purchase of the stock.

* If any of the current shareholders are coming forward to purchase shares, they must be allocated these shares. When no existing shareholder is interested in, or excess shares are available, the same could be transferred to the external partner.

Step 5: Get the SH-4 Share transfer act duly executed by both the transferor and transferee.

Step 6: In compliance with the Indian Stamp Act and the Stamp Duty Notice in effect in the State in question, the transfer certificate will bear stamps. The official share transfer rate is 25 Paise, for every 100 rupees of the share value or part thereof. Should not forget to cancel the stamps that were issued at or before the transfer deed was signed.

Step 7: A person who gives his or her signature, name, and address must bear witness to the signatures of the transferor and the transferor of a share transfer deed.

Step 8: Change the corresponding share certificate or allocation letter to the share transfer deed and forward it to the company. A share transfer deed must be deposited with the company, in or on behalf of the customer, within sixty ( 60 ) days of the date of execution, and in or on behalf of the customer.

Step 9: The Board shall consider the same after receiving the share transfer deed. If the share transfer documentation is in order, the Board shall register the transfer by resolution.

How to Transfer Shares of a Private Limited Company

The following steps must be taken to carry out the share transfer:

Step 1: Get the share transfer deed as required.

Step 2: execute the transfer of shares duly signed by the Transferor and Transferee.

Step 3: Stamp the share transfer deed in compliance with the Indian Stamp Act and the State Stamp Duty Notice.

Step 4: Have a witness register with his / her signature, name, and address the transfer deed.

Step 5: Attach the transfer document to the share certificate or allocation letter and send it to the company.

Step 6: the company shall process the paperwork, and the transferor shall grant if accepted, a new share certificate.

Are you looking to increase the authorized share capital of the company?
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Time limits

Businesses that have the share capital: The Company shall, within 60 days of its execution, not register any transfer of shares of the company or any ownership interest in it other than beneficial owners without a proper transfer instrument.

Application by the transferor alone: The transfer shall not be registered until and until the company notifies the transferor and the transferor within 2 weeks of receipt of the notice. 

No opposition certificate: In following situations and under the subsequent time limits, the company shall issue certificates to all securities allocated/transferred/transmitted:-

A. For memorandum subscribers – within 2 months of the date of incorporation.

B. In the event of allocating all of the shares within 2 months of the allocation date,

C. Delivery of the Transfer/Intimation Transmission Instrument by the client within 1 month from the delivery date.

D. Allocation of debenture – within 6 months of the allocation date.

Penalties

In the case of an officer in practice, the minimum is Rs. 25.000, and the maximum is Rs. 5,00,000; and the average is Rs.1,00,000.