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• "Share transfer deed format India" Share transfer is the process of changing the ownership of shares from one person (the transferor or seller) to another person or entity (the transferee or buyer). In India, this process is governed primarily by the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014, along with the company's own Articles of Association (AOA).

It's important to distinguish between two types of share holdings:

• Physical Shares: Shares held in the form of physical share certificates. The transfer process involves physical documents.

• Dematerialized (Demat) Shares: Shares held electronically in a demat account with a depository participant (DP). The transfer process is electronic.

While most listed companies have demat shares, private limited companies often still have shares in physical form. The following explanation primarily focuses on the physical share transfer process, as demat transfers are largely handled by depositories.

Key Principles of Share Transfer

1. Transferability: Shares are generally considered movable property and are transferable. However, a private limited company's AOA can impose restrictions on transferability (e.g., pre-emptive rights for existing shareholders).

2. Voluntary Act: Share transfer is a voluntary act by the transferor.

3. Consideration: Shares can be transferred for monetary consideration (sale) or without consideration (gift).

4. Board Approval: For private limited companies, the Board of Directors typically has the power to approve or reject share transfers, subject to the AOA.

Participants in the Share Transfer Process

• Transferor: The existing shareholder selling/transferring the shares.

• Transferee: The person or entity acquiring the shares.

• Company: The company whose shares are being transferred.

• Witness: A person who attests the signatures on the Share Transfer Deed.

Documents and Information Required

Before initiating the share transfer, ensure you have the following:

1. Original Share Certificate: The physical share certificate(s) of the shares being transferred.

2. Share Transfer Deed (Form SH-4): This is the mandatory legal document for transferring shares.

3. PAN Cards: Photocopies of PAN cards of both the transferor and transferee.

4. Address Proof: Proof of residential address of both the transferor and transferee (e.g., Aadhaar, Passport, Driving License, Utility Bill).

5. Consideration Receipt: Proof of payment if the shares are being sold (e.g., bank statement, transaction receipt).

6. Board Resolution: A certified true copy of the Board Resolution passed by the company approving the share transfer.

7. Articles of Association (AOA): For reference, to check any restrictions on transfer.

8. Indemnity Bond (if applicable): May be required in certain cases (e.g., lost share certificate).

9. No Objection Certificate (NOC) (if applicable): If the AOA mandates offering shares to existing shareholders first (pre-emptive rights), an NOC from them (or proof they declined the offer) might be needed.

Step-by-Step Share Transfer Process (Physical Shares in a Private Limited Company)

Step 1: Review Articles of Association (AOA)

• Before any transfer, the company's AOA must be thoroughly reviewed.

• It may contain specific clauses regarding share transfers, such as:

  • Pre-emptive Rights: Existing shareholders might have the "right of first refusal" to purchase shares offered for sale before they can be offered to outsiders.

  • Board Approval: Many private companies require the Board of Directors' explicit approval for any share transfer.

  • Valuation Method: The AOA might specify how the share price is to be determined (e.g., by directors or an auditor).

Step 2: Notice of Intention to Transfer (If Pre-emptive Rights Apply)

• If the AOA includes pre-emptive rights, the transferor must first give a written notice to the company stating their intention to transfer shares.

• The company then notifies the existing shareholders about the availability of shares, the offer price, and the deadline for expressing interest.

• If existing shareholders do not exercise their pre-emptive rights within the stipulated time, the transferor is then free to offer the shares to outsiders.

Step 3: Execution of Share Transfer Deed (Form SH-4)

• Obtain Form SH-4: This is the prescribed "Securities Transfer Form" under Section 56 of the Companies Act, 2013, and Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014.

• Fill Details: Accurately fill all particulars, including:

  • CIN and Name of the Company.

  • Description of securities (kind, class, nominal value, amount paid up, number of securities, distinctive numbers of shares).

  • Consideration received (if any, in figures and words).

  • Transferor's details (Folio No., Name, PAN, Signature).

  • Transferee's details (Name, Father's/Mother's/Spouse name, Address, Email, Occupation, PAN, Folio No. if existing, Signature).

  • Details of the witness (Name, Address, Signature).

• Signatures: Both the transferor and transferee must sign the form. A witness must also sign and provide their name and address.

• Date of Execution: Mention the date of execution clearly.

Step 4: Payment of Stamp Duty

• The Share Transfer Deed (Form SH-4) must be duly stamped as per the Indian Stamp Act, 1899, and the applicable stamp duty rates in the state where the company's registered office is located.

• Rate of Stamp Duty: Currently, the stamp duty on transfer of unlisted shares in physical form is 0.015% of the consideration amount (transaction value) or market value, whichever is higher.

• Mode of Payment: Stamp duty can be paid through franking, e-stamping, or by affixing physical share transfer stamps on the deed. The transferor is generally responsible for affixing and canceling the stamps.

• Importance: An unstamped or insufficiently stamped transfer deed is not considered a valid instrument and cannot be acted upon by the company.

Step 5: Submission of Documents to the Company

• The transferor (or transferee) must submit the duly executed and stamped Share Transfer Deed (Form SH-4) along with the original share certificate(s) to the company's registered office.

• This submission must be made within 60 days from the date of execution of the Share Transfer Deed.

Step 6: Board Meeting and Approval

• Upon receiving the transfer documents, the company's Board of Directors will hold a Board Meeting to consider the share transfer request.

• The Board will:

  • Verify the documents (SH-4, share certificate, stamp duty, IDs).

  • Ensure compliance with the AOA (e.g., pre-emptive rights, if applicable).

  • Pass a Board Resolution approving the transfer of shares.

  • Authorize the company to update the Register of Members and issue a new share certificate.

• Rejection: The Board has the power to refuse registration of the transfer under certain circumstances (e.g., non-compliance with AOA, improper documentation, or if the transfer is not in the company's interest). If rejected, the company must notify the transferor/transferee within 30 days of receiving the share transfer deed, stating the reasons for refusal. The aggrieved party can then appeal to the National Company Law Tribunal (NCLT).

Step 7: Updating the Register of Members and Register of Transfers

• Once the Board approves the transfer, the company must update its Register of Members (Form MGT-1) to reflect the new ownership, removing the transferor's name and adding the transferee's name.

• The company must also update the Register of Transfers (if maintained).

Step 8: Issuance of New Share Certificate

• The company is mandated to issue a new share certificate in the name of the transferee within one month from the date of receipt of the Share Transfer Deed by the company (or within two months in the case of transfer of shares by a depository).

• The old share certificate(s) held by the transferor should be cancelled or endorsed.

Step 9: Filing with Registrar of Companies (ROC) - Annual Return

• Unlike some other changes, a specific e-form is not filed immediately with the RoC for each share transfer.

• Instead, the details of all share transfers are reported to the RoC as part of the company's Annual Return (Form MGT-7 or MGT-7A for OPCs/Small Companies). This form includes details of changes in the shareholding structure for the relevant financial year.

Share Transfer without Consideration (Gift)

• If shares are transferred as a gift, the process remains largely the same.

• The Share Transfer Deed (Form SH-4) will indicate "No Consideration" or "Gift".

• A Gift Deed may also be executed between the transferor and transferee (though not strictly mandatory for company filing, it's good practice for personal records and tax implications).

• Stamp duty will still be applicable on the market value of the shares, as stamp duty is levied on the instrument of transfer, not necessarily on the consideration amount.

Transmission of Shares (Due to Death, Inheritance, etc.)

Share transmission is different from share transfer. Transmission occurs due to the operation of law (e.g., death of a shareholder, insolvency, marriage of a female shareholder). It does not involve consideration. The legal heir/representative applies to the company with relevant documents (death certificate, legal heir certificate, probate, will, etc.) for transmission of shares. The company records the transmission in its Register of Members, and no SH-4 is required.

Key Considerations and Penalties

• Timeliness: Adhere strictly to the prescribed timelines for submission of documents and issuance of new certificates.

• Accuracy: Ensure all details in Form SH-4 and other documents are accurate to avoid delays or rejections.

• Penalties for Non-Compliance:

  • Company: If a company fails to register a transfer or transmission within the prescribed period, it can be liable for a penalty of not less than INR 25,000, which may extend to INR 5 lakh.

  • Officer in Default: Every officer of the company who is in default can be liable for a penalty of not less than INR 10,000, which may extend to INR 1 lakh.

  • Stamp Duty: Failure to pay proper stamp duty can render the transfer deed inadmissible as evidence and may attract penalties under the Indian Stamp Act, 1899.