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The transfer of shares in a company involves a structured legal and administrative process that ensures proper ownership change and compliance with the Companies Act, 2013, and the company's Articles of Association (AoA).

1. Execution of the Share Transfer Deed

This is the initial and crucial legal step involving the transferor (seller) and the transferee (buyer).

• Execution of Form SH-4: The transferor and transferee must execute the Share Transfer Deed in the prescribed Form SH-4.

  • Details: This deed must specify the names, addresses, ledger folio numbers, and the number of shares being transferred.

  • Signatures: It must be signed by both the transferor and the transferee, and their signatures must be witnessed by a person who must also sign and state their name and address.

• Adjudication (Stamp Duty): The executed Share Transfer Deed (Form SH-4) must be properly stamped or adjudicated according to the provisions of the Indian Stamp Act, 1899, based on the market value of the shares or the consideration, whichever is higher, prevailing on the date of execution.

2. Submission of Documents to the Company

Once the Share Transfer Deed is properly executed and stamped, the transferee or the transferor must submit the following documents to the company's Registered Office:

• The executed and duly stamped Share Transfer Deed (Form SH-4).

• The original Share Certificate relating to the shares being transferred. If only a part of the shares covered by the certificate is being transferred, the original certificate must still be submitted.

• The consideration amount for the shares (if not already paid).

3. Review and Approval by the Board of Directors (BoD)

The company’s Board of Directors reviews the application for transfer.

• Scrutiny: The company checks that the Form SH-4 is complete, properly stamped, and the necessary share certificate is attached. They also check for any restrictions on transfer specified in the company’s Articles of Association (AoA), such as the right of pre-emption.

• Passing Board Resolution: If the documents are in order and there are no valid objections, the Board of Directors passes a Board Resolution approving the share transfer. This resolution authorizes the company secretary or a director to endorse the change on the share certificate.

• Refusal to Register: If the BoD decides to refuse the transfer (only if allowed by the AoA and for valid reasons), the company must send notice of refusal to the transferor and the transferee within 30 days from the date the instrument of transfer was delivered to the company.

4. Endorsement and Issuance of New Share Certificates

Following the Board’s approval, the company proceeds with updating its records.

• Endorsement: The company cancels the old Share Certificate and either endorses the name of the new shareholder (the transferee) on the original certificate (if it was a partial transfer) or issues a new Share Certificate entirely.

• Timelines for Issuance: The company must deliver the new share certificates or the certificates with the required endorsement to the transferee within one month from the date of receipt of the Share Transfer Deed by the company.

5. Updating Statutory Records

The final step is to formally record the transfer in the company's official registers.

• Register of Members (MGT-1): The company must update the Register of Members (Form MGT-1), removing the name of the transferor and entering the name of the transferee as the new beneficial owner, along with the date of transfer.

• Share Transfer Register: The transfer details (date of submission, approval, new certificate number) are recorded in the Share Transfer Register.

6. Special Circumstances (Transfer by Operation of Law)

If shares are transferred due to the death of a shareholder (transmission of shares), or a court order, the process is slightly different:

• No Deed Required: Form SH-4 is not required for transmission of shares (e.g., to a legal heir).

• Required Documents: The legal heir must submit the original Share Certificate along with proof of entitlement, such as a death certificate, Will, or a Succession Certificate/Probate. The BoD reviews these documents and approves the entry of the legal heir's name in the Register of Members.

In-Depth Details on Share Transfer Procedure

1. Stamp Duty (Adjudication) Requirement

The requirement for proper stamping is a common area of non-compliance for physical shares.

• Rate: Stamp duty is levied under the Indian Stamp Act, 1899, on the Share Transfer Deed (Form SH-4). The current rate of stamp duty on transfer of shares is generally 0.015% (fifteen paise per hundred rupees) of the market value of the shares as of the date of execution or the consideration amount, whichever is higher.

• Method of Stamping: The stamp duty is generally paid electronically through the system of e-stamping (often managed by the Stock Holding Corporation of India Ltd. - SHCIL) or through adhesive stamps designated for share transfer.

• Consequence of Improper Stamping: An unstamped or insufficiently stamped Share Transfer Deed is not admissible as evidence in a court of law and can be rejected by the company's Board of Directors. Proper stamping is an essential prerequisite for initiating the transfer process.

2. Grounds for Refusal by the Board of Directors

The Board of Directors (BoD) does not have the absolute right to refuse any share transfer. Their power to refuse is limited and must be exercised in good faith.

• Legal Basis: The primary grounds for refusal must be explicitly provided in the company's Articles of Association (AoA). Private companies often include clauses granting the BoD the right of pre-emption (first refusal) or the right to reject transfers to undesirable persons.

• Defective Documentation: The most common valid reason for refusal is a technical defect, such as:

  • Improper or insufficient stamping of Form SH-4.

  • Share Transfer Deed is incomplete (e.g., missing signature of the witness).

  • Transfer is time-barred (i.e., not submitted to the company within the prescribed time limit of 60 days from the date of execution).

  • Original Share Certificate is not submitted.

• Procedure After Refusal: If the BoD refuses the transfer, the company must serve a Notice of Refusal to both the transferor and the transferee within 30 days of the date the documents were presented to the company. The aggrieved party (transferee) then has the right to appeal the refusal to the National Company Law Tribunal (NCLT).

3. Procedure for Transfer of Dematerialized (Demat) Shares

The procedure described earlier applies to physical shares only. Shares held in electronic (demat) form follow a simpler, paperless process governed by the Depositories Act, 1996.

• No Physical Form SH-4: The physical Share Transfer Deed (SH-4) is not required.

• Delivery Instruction Slip (DIS): The shareholder who wants to sell/transfer shares (transferor) fills out a Delivery Instruction Slip (DIS) provided by their Depository Participant (DP). This slip authorizes the DP to debit the specified number of shares from their demat account.

• Target Account Details: The DIS contains the details of the buyer's (transferee's) demat account (i.e., the target demat account).

• Broker/Exchange Facilitation: The instruction is routed electronically via the DP to the relevant Depository (NSDL or CDSL) and is usually executed through a stock exchange mechanism if it is a sale, or off-market transfer instructions for non-sale transfers.

• Automatic Credit: Once the transaction is processed, the shares are electronically debited from the transferor's demat account and credited to the transferee's demat account. The company's Register of Members is updated automatically based on the electronic records provided by the Depositories.

4. Time Limit for Presenting the Transfer Deed

There are strict time limits for presenting the Share Transfer Deed (Form SH-4) to the company after its execution:

• The executed and stamped Form SH-4, along with the original share certificate, must be delivered to the company by the transferee within 60 days from the date of execution.

• If the company receives the documents after the 60-day period, the BoD must record the reasons for the delay before approving the transfer.

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