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Pankaj Tyagi
| Updated: 25 Dec, 2021 | Category: SEBI Registration

Share Transfer: Underlining Key Facts and Legalities

Share Transfer: Underlining Key Facts and Legalities

The share transfer is an important characteristic of any registered company. Shares or debentures are movable property and thus can be transferred under certain conditions cited under AoA.

The securities transfer is possible via any arrangement or contract between two or more individuals. The Company Act has provisions that deal with the transferability of securities. Transmission of securities implies the title loss on such securities due to succession, demise, inheritance, bankruptcy, etc. It is something other than transfer.

What is the Meaning and Significance of Share Transfer?

Transfer of shares implies the voluntary transfer of the duties and rights of the company’s member as represented in a company’s share. The concept of share transfer comes to light when the shareholder voluntary wants to pass its shares to another individual who wants to become a member of the company in question.

Therefore, shares are transferable like other movable property without any expressed restrictions listed under the AoA.

Parities engaged in the Share transfer process

  • Subscribers to the memorandum
  • Legal Representative, in case of a deceased
  • Transferee
  • Transferor
  • Company (whether listed/ unlisted)

Process of share transfer as per the Companies Act, 2013

According to the Companies Act, 2013, the transfer of shares takes place in the following manner:

  • Preparation of transfer deed is the first step in the share transfer process. For this purpose, the transferor needs to secure the Form, namely Form SH-4, endorsed by the regulating authority.
  • The said Form may lack the inclusion of transfer’s instrument, particularly in the given scenarios;

Where the director or nominee hands over the shares on behalf of another body corporate u/s 187 of the Company Act, 2013;

Where a director or nominee hands over shares behalf of a corporation controlled or owned by the state or central government;

Shares transferred via a deposit as a repayment’s security of any advance or loan if they are made with any of the following:

  • State Bank of India; or
  • Any scheduled bank; or
  • Any other banking company; or
  • State Government; or
  • Central Government; or
  • Any corporation working under Central or State Government[1]; or
  • Trustees who have filed the declarations

For debenture transfer, a standard format can be utilized as the transfer’s instrument.

  • Secure the AoA in case of shares; meanwhile, in case of debentures, utilize trust deed. The transfer deed, in such a case, should be registered by one of the parties involved in the transfer.
  • As per the India Stamp Act & stamp duty notification in force, the transfer deed must enclose stamps. Presently, the stamp duty for share transfer is capped at 25 paise/100 pages of the share’ value or part thereof.
  • Check that the stamp on the transfer deed is cancelled at the time of or before signing the transfer deed.
  • A person who encloses his/her signature, name, & address as approval for share transfer must witness the parties to the contract (i.e. transferor and the transferee) sign the deed in person.
  • The relevant share/debenture certificate with a transfer deed must be aptly attached and sent to the company in question.
  • In case the transferor files the application for partly paid shares, the company must duly notify the sum due on shares/debentures to the transferee. Besides, a transferee’s NOC is required within two weeks from the date of receipt of the aforesaid notification.
  • In case of the transfer deed is misplaced or lost, make sure the affix the same value on the application. The board under such a scenario may register the share transfer on certain indemnity’s terms as it thinks fit.
  • If the company’s shares are listed on the stock exchange, then the company cannot charge any amount as a fee for the registration of shares and debentures transfer.
  • Note: A company cannot register a transfer relating to partly paid shares in the following cases:
  • The transferee has received the notice from the company in Form No. SH.
  • Till the transferee has furnished a NOC to the transferor within two weeks from the date of the receipt of the notice.

Time Limits for facilitating certificate for share allotment

A Company has share capital: The Company shall not register a transfer of the company’s securities or member’s interest in the organization other than beneficial owners without apt instrument of transfer within 60 days from the execution date.

Application by transferor alone: The transfer will not be registered until the company prompts notice of the application the transferor and the transferee gives a no-objection certificate within two weeks from receipt of the notice.

The company shall confer certificates relating to all securities allotted/ transferred/ transmitted in the given circumtrances and within the given time limit:

In case of subscribers to MoA– within two months from the incorporation date.

In case of allotment of shares – within two months from the allotment date.

Receipt by the entity of the instrument of transfer/ intimation of transmission – within one month from the date of receipt.

Allotment of debenture – within six months from the date of allotment.

Penalties

  • For the company – the Minimum is Rs. 25,000, and the maximum is Rs. 5,00,000.
  • For an officer In default – The minimum is Rs. 10,000, and the maximum is Rs. 1,00,000.

Conclusion

As you can see, the share transfer process isn’t as straightforward as it seems from the outset. It revolves around plenty of legalities, as mentioned above, to bring transfer into effect. Both transferor and transferee play a vital role in this context since they are the only party to the contract.

Read our article:Transfer and Transmission of Securities – Procedure of Transfer, Time Limits, and Penalties

Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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