Transfer of shares and securities in a Private Limited Company

A Private Company may restrict the transfer of its shares by members through the provisions of its Articles of Association. Therefore when a shareholder of a Private Limited Company wants to sell his share, he must first intimate this matter to the Board of Directors for their approval.

The Board of Directors shall inform the other shareholders of this matter and give them an opportunity to purchase these shares. The price at which these share can be purchased will be decided by the provisions contained in the articles of Association if a method of valuation is provided or else a valuation maybe done by an expert.

The following documents should be submitted to the Board/Committee within a period of 60 days from execution of SH-4:

1. Original Form SH-4 duly stamped (by Share Transfer Stamp), dated and executed

2. Stamp duty depends on the local rates notified by each state (usually 0.25% of the consideration)

3. Original share certificate or allotment letter

4. The name, address and occupation, if any, of the transferee has to be specified

The transfer should be registered by the Board of Directors or their committee in all cases. This will be evidenced by a minutes of their meeting and their decision

Where the instrument of transfer (SH-4) has been lost or has not been delivered within 60 days, the Board may ask for suitable indemnity before registering the transfer. In case of deceased member, the transfer can be made by his legal representative on his behalf

If only a part of the shares contained in a certificate is transferred, the company may issue a new certificate for the balance amount after the transfer. The original share certificate must be surrendered for this. Upon receipt of the old share certificate, it will be defaced with suitable markings on them. The particulars of every such share certificate replaced/duplicated shall be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No.SH.2 kept at the registered office. This register should be duly authenticated by the Board.

The Register of Members maintained in Form MGT-1 has to be updated within 7 days of approval of the transfer by the Board/ Committee.

In case of any default is made in complying the provisions

1. the company shall be punishable with fine of 25,000 – 5,00,000

2. every director/officer shall be punishable with fine of Rs 10,000 – 1,00,000

Relevant Section and Rules

Section 56 of Companies Act 2013 – Transfer and transmission of securities 

Section 88 of Companies Act 2013 – Register of Members

Rule – 6, Companies (Share Capital and Debentures) Rules, 2014

Rule – 3, Companies (Management and Administration) Rules, 2014