Share Transfer

Share transfer is the process of transferring ownership of shares from one person (transferor) to another (transferee). In private companies, it requires board approval and adherence to right of first refusal in the AOA. In public companies, shares are freely transferable.

The procedure involves the transferor submitting a written notice to the company indicating intention to sell, the company offering shares to existing shareholders (right of first refusal), if not exercised, executing a share transfer deed (Form SH-4), paying stamp duty, submitting to the board for approval, registering the transfer, and issuing new share certificates.

Form SH-4 is the instrument of transfer (share transfer deed) used to transfer shares. It must be duly stamped (0.25% of share value), signed by both transferor and transferee, and delivered to the company along with the share certificate for registration of transfer.

Private companies must restrict share transfer through their AOA, typically by requiring board approval and giving existing shareholders the first right to purchase (pre-emption rights). Shares cannot be freely transferred to outsiders without following these procedures.

Companies must register share transfers and issue new certificates within 15 days of receipt of properly executed transfer documents, unless the transfer is refused. For refusal, notice must be given to the transferee within 30 days with reasons.

Yes, private companies can refuse transfer if AOA provisions are not followed, the transferee is not a suitable person, or if required approvals are not obtained. However, refusal must be bonafide and not arbitrary. The transferor or transferee can appeal refusal to the NCLT.

Share transfer is a voluntary act between living persons. Share transmission occurs by operation of law (death, insolvency, lunacy) to legal heirs or representatives. Transmission does not require a transfer deed but requires proof of entitlement (death certificate, succession certificate).

Stamp duty of 0.25% of the value of shares transferred is payable on the transfer deed. E-stamping is mandatory in many states. Insufficient stamping makes the transfer deed inadmissible as evidence and attracts penalties.

Dematerialization is converting physical share certificates into electronic form held in a demat account. For public companies and certain private companies, demat is mandatory. Demat shares are transferred electronically without physical transfer deeds.

After transfer, the company must update the register of members, issue new share certificates, file Form PAS-3 for return of allotment if it involves fresh issue, update MCA records if significant changes occur, and inform the bank of shareholding pattern changes.