Share Transfer

What Is Share Transfer?

Share transfer refers to the process of transferring ownership of shares from one person (the transferor) to another (the transferee) in a company. It is a common practice in private and public limited companies, allowing shareholders to sell, gift, or assign their shares to other individuals or entities.

Benefits of Share Transfer:

• Liquidity: Share transfer allows shareholders to liquidate their holdings, whether by selling shares in a public company or transferring shares in a private company.
• Ownership Flexibility: Share transfer enables companies to change ownership and bring in new investors or partners.
• Strategic Partnerships: Transfer of shares can be a tool for businesses to form alliances, raise capital, or restructure ownership.

Types of Share Transfers:

1. Private Company:
   • Restricted Transfer: In a private company, share transfer is often restricted by the company’s Articles of Association. The company may require approval from the board of directors or other shareholders before a share can be transferred.
   • Right of First Refusal: Some private companies have a clause that gives existing shareholders the first option to buy shares being sold before they can be transferred to a third party.
2. Public Company:
   • Free Transferability: Shares in a public company can generally be transferred freely through the stock market. Public companies have fewer restrictions on share transfers compared to private companies, although some rules may still apply under specific circumstances.

Process of Share Transfer:

1. Agreement Between Transferor and Transferee:
   • The transferor (seller) and transferee (buyer) must agree on the terms of the transfer, including the price and other conditions. This agreement can be made through a sale and purchase agreement, which may need to be formalized in writing.
2. Execution of Share Transfer Deed:
   • The transferor must execute a share transfer deed on the prescribed format (usually Form SH-4 for Indian companies) to initiate the transfer process. The deed must be signed by both the transferor and transferee.
3. Delivery of Share Certificate:
   • The transferor hands over the original share certificate to the transferee, indicating the ownership transfer. If the company has issued a new certificate after the transfer, the transferee receives this new certificate.
4. Board Approval (for Private Companies):
   • In case of a private company, the share transfer needs to be approved by the board of directors. The board may approve or reject the transfer based on the company’s Articles of Association or any applicable restrictions.
5. Stamp Duty Payment:
   • A stamp duty is typically required on the share transfer deed. The amount depends on the state laws and the value of the shares being transferred. This must be paid to make the transfer legally valid.
6. Updating the Share Register:
   • The company maintains a share register that needs to be updated to reflect the new owner of the shares. This is a crucial step to legally recognize the transferee as the new shareholder.
7. Issuance of New Share Certificate:
   • Upon completion of the transfer and approval, the company issues a new share certificate to the transferee, marking them as the official owner of the shares.

Documents Required for Share Transfer Services:

• Share Transfer Deed (Form SH-4 for Indian companies).
• Share Certificate: Original share certificate held by the transferor.
• Proof of Identity: Identity proof of the transferor and transferee (e.g., Aadhar card, passport).
• Board Resolution (for private companies): A resolution passed by the board of directors authorizing the transfer (if required).
• Payment of Stamp Duty: Evidence of stamp duty payment (based on the share value).
• No Objection Certificate (if applicable): For some companies, shareholders may need to obtain approval from other shareholders or a NOC from the board.