What is a Share Transfer? And Share Transfer Procedure in Private Limited Company
In a Private Limited Company, the shareholders assist in determining the company’s ownership. If you want to introduce new investors or transfer ownership during your business, you must transfer the shares. Today, we will look at the process of transferring shares in a Private Limited Company, along with that this blog will include all the information on Transfer of Shares, the procedure of Transfer of shares, and other information on Share transfer in Private Limited Company.
Table of Content
What is a Share Transfer?
The term Share Transfer refers to the voluntary transfer of a share’s title from one party to another. In general, a business’s shares are freely transferable, although the articles of incorporation may impose certain limits on the transfer of Private Limited Company Shares.
Benefits of Share Transfer
- Capital appreciation, Pay entitlement, limited responsibility, right shares, liquidity, bonus shares, demand over profits and assets, and other examples are all advantages of investing in equity shares.
- You can reduce your tax bill.
- Furthermore, you will be the proprietor of a rapidly expanding company.
- You will work with the new private equity investor.
The restriction imposed by AOA (Articles of Association) in Transferring Shares
Under specific situations outlined in the Articles of Association, the directors may have the authority to refuse the registration of a share transfer.
If a shareholder decides to sell his shares, the director or the company’s auditor must offer the shares to other existing members of the Private Limited Company at a price decided by the director or the company’s auditor. If that condition is not fulfilled then the process of share transfer will be kept on hold. The value of the shares can also be calculated using the methodology specified in the Articles of Association. If no present shareholders are interested, the company’s shares can be freely transferred to a third party.
The procedure of Share transfer of a Private Limited Company
First steps towards the procedure of transferring shares from the existing shareholder to the new shareholder:
- The transferor sends the corporation a notice.
- Board resolution reviewing the transferor’s notice to the corporation
- The corporation provided the current shareholders with an offer letter.
- The current stockholders have written an objection letter.
- Stamp duty is refunded along with the SH-4 share transfer agreement.
- Certificates should be shared.
- The board of directors decided to file the transfer of shares.
Steps involved in initiating Share Transfer Procedure
- The Private Limited Company’s Articles of Association must be evaluated, and any restrictions must be rectified.
- The intention to transfer a share of the company must be communicated to the Company’s Director in writing.
- Establish the price according to the company’s articles of incorporation, where the company’s shares are sold first to its current shareholders.
- The corporation must then notify the other shareholders of the availability of shares, as well as the deadline for purchasing them and the price at which they are available.
The process to Transfer Shares of Private Limited Company
- Obtain a share transfer deed that follows the guidelines.
- Complete the share transfer deed by having both the Transferor and the Transferee sign it.
- Stamp the share transfer deed in accordance with the Indian Stamp Act and the State’s Stamp Duty Notification.
- Have a witness sign the share transfer deed with his or her name, address, and signature.
- Deliver the transfer deed to the Company together with the share certificate or allotment letter.
- The corporation must review the paperwork and, if they are authorized, issue a new share certificate in the transferee’s name.
Only when the transfer is registered by the corporation the share transfer procedure will be completed. The corporation must transmit the share certificate to the transferee within one month of registration. The transferability of shares in a private limited company is completely done by following the norms made in AOA while shareholders in a public limited company can readily and freely transfer their shares.
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