Rules & regulations for transfer of shares in a private limited company are mentioned under Section 56 of the companies act, 2013. One of the attractive features pertaining to shares of a private limited company is its flexibility i.e. free transferability from one person to another. But this transfer of shares must be mentioned in the articles of the company.
WHAT DOES SECTION 56, COMPANIES ACT, 2013 SIGNIFIES?
As per section (56), CompaniesAct, 2013; a company shall register the request for transfer shares, only when a proper application for transfer as per the format laid down in Form No SH. 4 is submitted. The form needs to be duly stamped, with adequate value, dated and executed by or on behalf of the transferor and the transferee.
RESTRICTION ON TRANSFER OF SHARES
PROVISIONS RELATING WITH TRANSFER OF SHARES
1. Transfer deed (Form SH-4): A private limited company cannot register the request for transfer shares unless it is submitted in the required format as specified by companies act, 2013. Rule 11 of the Companies (Share Capital and Debentures) Rules 2014 authorizes Form SH-4 to be used for transfer of shares.
2. Time duration to submit a share transfer form: Transfer deed must be sent to the company within sixty (60) days from the date of execution specified in Form SH-4.
3. Stamp duty on share transfer: Generally a stamp duty on share transfer is 25 paisa for every Rs. 100 or a part of the value of shares.
4. Maximum time limit to issue certificate for transfer of shares: A private limited company must deliver the certificate within one (1) month of receiving transfer shares application; unless prohibited by court of law.
5. Restriction on transfer of shares: Section 2(68) of companies act, 2013; provides that articles of association of a private limited company can restrict the right of shareholders to transfer shares. This restriction is completely binding on the private limited company, its employees & its shareholders.
(Note: If this restriction is not mentioned in Articles of association & is enforced by way of a private agreement between the parties, then it shall not be binding on either of the party associated)
6. Penalty for non-compliance: Not complying with the rules specified for transfer shares will attract a penalty of Rs. 25,000 which may go upto Rs. 5 lacs (in case of a private limited company).
SHARE TRANSFER PROCEDURE
1. Form SH-4 viz. transfer deed form must be endorsed by the prescribed authority.
2. Articles of Association (shares)/Trust deed (debentures)/Transfer deed registered in accordance with the provisions of the section 56 Companies Act, 2013.
3. Transfer deeds should contain the necessary stamps and the stamp duty must be paid according to the provision of state stamp duty rules.
4. Check that the stamp affixed on the transfer deed is cancelled at the time of or before the signing of the transfer deed.
5. A person who gives his signature, name and address as approval for transfer must verify the signature on the transfer deed in person.
6. Transfer of share certificate with the transfer deed must be attached and sent to a private limited company.
7. In case the application is made by the transferor, the company has to duly notify the amount due on transfer shares to the transferee. Also, a no objection certificate (NOC) from the transferee is required to be submitted within two weeks from the date of receipt of the said notice.
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Chartered Accountant by profession, CA Sanket Agarwal has an experience of above11 years in Cross Border compliance , Import Export , International Taxation & is a passionate content creator.