SHARE TRANSFER IN PVT LTD
| share_transfer__form_sh4.docx |
Share Transfer
The Company's shareholding determines the ownership of a private limited company. The share of the private limited company would have to be transferred to induce new investors or transfer ownership of the Company.
Restrictions on transfer in AOA
A private limited company is considered by members to be a "closed corporation," similar to a partnership company. Therefore the Articles of Association (AOA) may restrict the transfer of share in a Private Limited Company. Consequently, the company's Articles of Association must be reviewed before starting the share transfer procedure.
Restrictions on shareholders' right to transfer shares usually come in two ways:
-- Preemption rights: If a shareholder wishes to sell some or all of its shares, those shares must first be offered to other existing members of a private limited company at a price determined by the Company's directors or auditors. You can determine the value of the shares based on the formula / method prescribed in the Articles of Association. Then shares of the Company can be freely transferred to an outsider in no existing shareholder is interested.
-- Powers of Directors to refuse: The Director may, under certain circumstances – as prescribed in the Articles of Association – be empowered to refuse registration of the transfer of shares.
Only the restriction contained in the Articles of Association shall be deemed to have legal effect. Any private shareholder agreement is not binding on either the firm or the shareholders. Moreover, the Articles of Association will limit the transfer of shares only. A private limited company's right to transfer shares can not be a total prohibition or a ban on the transferability of shares.
Introduction of the share transfer procedure
The following steps must be taken for the initiation of the share transfer procedure:
-- Phase 1: AOA review: Articles of the Private Limited Company Association need to be reviewed and limitations discussed, if any.
-- Step 2: The shareholder shall notify the Company's Director in writing of his intention to transfer the company's share.
-- Step 3: Determine the price according to the Articles of Association at which the Company's shares will be offered first to present the Company's shareholders. (This price is usually determined by the Company's directors or an auditor.)
-- Step 4: The company must then notify the other shareholders of the availability of the share, of the last purchase date and of the price at which the share is available.
If any of the present shareholders come forward to buy shares, they must be allocated those shares. The same can be transferred to the outsider in the event that no present shareholder is interested or excess shares are available.
How to Transfer Private Company Shares
The following steps must be followed to effect the share transfer:
-- Step 1: Obtain a prescribed format of share transfer deed.
-- Step 2: execute the transfer deed properly signed by the transferee.
-- Phase 3: Stamp the transfer deed in compliance with the Indian Stamp Act and the Stamp Duty Notice in effect in the State.
-- Step 4: Make a witness sign with his / her signature, name and address the transfer deed.
-- Step 5: Attach to the transfer deed a share certificate or letter of allotment and deliver the same to the company.
-- Phase 6: The company shall process the documentation and grant a new share certificate in the name of the transferee if accepted.
Share Transfer Procedures-Physical mode
Share ownership can be transferred through possession delivery but there is a contractual relationship between the members and the company. The contractual relationship is assigned to the transferor who needs a transfer instrument when shares are transferred. A share transfer involves a series of steps, first a selling agreement (Share Transfer Deed), then execution of a transfer deed and finally registration of the transfer.
Transfer Deed
Share transfer deed is a contract instrument that both the transferee and the transferor will perform. The transfer of shares must be duly stamped and delivered to the company together with the transferred shares certificate. The company can not accept any transfer instrument which is not in conformity with these provisions. Share transfer is executed in physical mode with the help of Form "SH-4."
Acknowledgement
Some companies send the instrument notice or acknowledgement to the transferee who has made a transfer with the company before scrutinizing the documents. The acknowledgement notice is usually in the form of a letter holding a checklist to scrutinize the transferring documents. Some businesses pursue a system of issuing receipt for transfer. If the transfer request is made by the transferor himself and he has partially paid for the shares; the transfer will not be reported by the company unless the transferor is accepted by the company and he has no objection to the transfer of the shares within 2 weeks of obtaining the notice. There is no contractual duty on the company to inform the transferee when the transferee submits the transfer papers.
Scrutiny
A inspection will be undertaken on receipt of all transition documents to ensure all records are in order. The scrutiny should be completed within 3 to 5 days of receiving the transfer documents. The same should be returned to the transferee in case the documents are not acceptable. If the transferee 's signature in the transfer instrument differs from the specimen signature on the record of the company, then the documents are returned.
Approval
Any transfer of shares shall be placed before the board of directors or committee for approval thereof. Registration occurs upon approval. If after scrutiny everything is accepted, then the right authority should approve it. The Board must approve the transfer of shares. If the company's articles empower the board to delegate its share transfer approval power, it may delegate it to a committee which may not be directors of the company.
Registration
The registration of the transfer of shares is a requirement for the transferee to obtain a company member status. A transfer is incomplete without Share Transfer Registration. A share transfer form is a document the transferee agrees to accept the shares through. This becomes an enterprise legal contract. Once the company approves and registers the transfer, this leads to the transferee 's name being entered in the member's registry and qualifies his status as a member. Maintaining the transition list isn't a constitutional necessity.
Share Certificate Delivery
Transfer takes effect only upon the company's registration of such shares. The company shall deliver the share certificate within 1 month of receipt by the transfer related instrument of the company. The transfer instrument must be endorsed with transferee 's respective name.
The Company's shareholding determines the ownership of a private limited company. The share of the private limited company would have to be transferred to induce new investors or transfer ownership of the Company.
Restrictions on transfer in AOA
A private limited company is considered by members to be a "closed corporation," similar to a partnership company. Therefore the Articles of Association (AOA) may restrict the transfer of share in a Private Limited Company. Consequently, the company's Articles of Association must be reviewed before starting the share transfer procedure.
Restrictions on shareholders' right to transfer shares usually come in two ways:
-- Preemption rights: If a shareholder wishes to sell some or all of its shares, those shares must first be offered to other existing members of a private limited company at a price determined by the Company's directors or auditors. You can determine the value of the shares based on the formula / method prescribed in the Articles of Association. Then shares of the Company can be freely transferred to an outsider in no existing shareholder is interested.
-- Powers of Directors to refuse: The Director may, under certain circumstances – as prescribed in the Articles of Association – be empowered to refuse registration of the transfer of shares.
Only the restriction contained in the Articles of Association shall be deemed to have legal effect. Any private shareholder agreement is not binding on either the firm or the shareholders. Moreover, the Articles of Association will limit the transfer of shares only. A private limited company's right to transfer shares can not be a total prohibition or a ban on the transferability of shares.
Introduction of the share transfer procedure
The following steps must be taken for the initiation of the share transfer procedure:
-- Phase 1: AOA review: Articles of the Private Limited Company Association need to be reviewed and limitations discussed, if any.
-- Step 2: The shareholder shall notify the Company's Director in writing of his intention to transfer the company's share.
-- Step 3: Determine the price according to the Articles of Association at which the Company's shares will be offered first to present the Company's shareholders. (This price is usually determined by the Company's directors or an auditor.)
-- Step 4: The company must then notify the other shareholders of the availability of the share, of the last purchase date and of the price at which the share is available.
If any of the present shareholders come forward to buy shares, they must be allocated those shares. The same can be transferred to the outsider in the event that no present shareholder is interested or excess shares are available.
How to Transfer Private Company Shares
The following steps must be followed to effect the share transfer:
-- Step 1: Obtain a prescribed format of share transfer deed.
-- Step 2: execute the transfer deed properly signed by the transferee.
-- Phase 3: Stamp the transfer deed in compliance with the Indian Stamp Act and the Stamp Duty Notice in effect in the State.
-- Step 4: Make a witness sign with his / her signature, name and address the transfer deed.
-- Step 5: Attach to the transfer deed a share certificate or letter of allotment and deliver the same to the company.
-- Phase 6: The company shall process the documentation and grant a new share certificate in the name of the transferee if accepted.
Share Transfer Procedures-Physical mode
Share ownership can be transferred through possession delivery but there is a contractual relationship between the members and the company. The contractual relationship is assigned to the transferor who needs a transfer instrument when shares are transferred. A share transfer involves a series of steps, first a selling agreement (Share Transfer Deed), then execution of a transfer deed and finally registration of the transfer.
Transfer Deed
Share transfer deed is a contract instrument that both the transferee and the transferor will perform. The transfer of shares must be duly stamped and delivered to the company together with the transferred shares certificate. The company can not accept any transfer instrument which is not in conformity with these provisions. Share transfer is executed in physical mode with the help of Form "SH-4."
Acknowledgement
Some companies send the instrument notice or acknowledgement to the transferee who has made a transfer with the company before scrutinizing the documents. The acknowledgement notice is usually in the form of a letter holding a checklist to scrutinize the transferring documents. Some businesses pursue a system of issuing receipt for transfer. If the transfer request is made by the transferor himself and he has partially paid for the shares; the transfer will not be reported by the company unless the transferor is accepted by the company and he has no objection to the transfer of the shares within 2 weeks of obtaining the notice. There is no contractual duty on the company to inform the transferee when the transferee submits the transfer papers.
Scrutiny
A inspection will be undertaken on receipt of all transition documents to ensure all records are in order. The scrutiny should be completed within 3 to 5 days of receiving the transfer documents. The same should be returned to the transferee in case the documents are not acceptable. If the transferee 's signature in the transfer instrument differs from the specimen signature on the record of the company, then the documents are returned.
Approval
Any transfer of shares shall be placed before the board of directors or committee for approval thereof. Registration occurs upon approval. If after scrutiny everything is accepted, then the right authority should approve it. The Board must approve the transfer of shares. If the company's articles empower the board to delegate its share transfer approval power, it may delegate it to a committee which may not be directors of the company.
Registration
The registration of the transfer of shares is a requirement for the transferee to obtain a company member status. A transfer is incomplete without Share Transfer Registration. A share transfer form is a document the transferee agrees to accept the shares through. This becomes an enterprise legal contract. Once the company approves and registers the transfer, this leads to the transferee 's name being entered in the member's registry and qualifies his status as a member. Maintaining the transition list isn't a constitutional necessity.
Share Certificate Delivery
Transfer takes effect only upon the company's registration of such shares. The company shall deliver the share certificate within 1 month of receipt by the transfer related instrument of the company. The transfer instrument must be endorsed with transferee 's respective name.
