Company Registration

What is the Procedure for Transfer of Shares in Private Limited Company?

calendar19 Nov, 2022
timeReading Time: 4 Minutes
What is the Procedure for Transfer of Shares in Private Limited Company?

The Private limited companies are companies that private Individuals hold. As the name suggests, liability of members of a pvt ltd company is limited to the number of shares owned by the members. The Shares cannot be traded publically. However, they are required to be systematically transferred by the owners. Transfer of Shares in a Private Limited Company can be done under some rules and regulations. The company’s shareholding decides the ownership of an Individual in a private limited company. The interests are sold to pass on the company’s control and to attract new investors.

The Provisions of Transfer of Shares in Private Limited Company

The Voluntary transfer of the title of a share[1] by one party to another is referred to as the transfer of shares. A company’s shares are easy to transfer. Still, there can also be certain restrictions imposed on Transfer of Shares in a Private Limited Company by the Articles of Association of the company. The transfer of shares involves the voluntary transferring of the rights and duties of a company member who no longer intends to be a member. Transfer of Shares is possible just like any other transfer of property unless the company’s articles restrict it. People who are involved in the process of Share Transfer are as follows-

  • Private Limited Company
  • Transferor
  • Transferee
  • Subscribers to the memorandum

A private limited company is also considered a closed corporation of members, just like a partnership firm. The Transfer of Shares in a Private Limited Company can be restricted by the Company’s Articles of Association or AoA. Therefore, it is essential to read the AoA thoroughly before initiating the transfer of shares. Usually, the transfer of shares is restricted in two ways by the Articles of Association, which are discussed below-

  • Rights of pre-emption- If a shareholder is willing to sell a few or all of his shares, they must be offered to the other members of private limited company at a price set by  Auditor or Director of the company. The share value can be determined by the method or way mentioned in the AOA or Articles of Association of the company. If no existing members are willing to buy the shares, then they can be transferred to someone outside the company.
  • Director’s power to restrict- The Director of a private limited company can limit the registration of the Transfer of Shares under some situations mentioned in the Articles of Association or AoA of the company. Only the restrictions which are mentioned in the Articles of Association are considered legally valid. Any private agreement between the shareholders is not honestly good for the company or shareholders. Only Articles of Association can restrict the Transfer of Shares in a Private Limited Company.

Documents Required For Transfer of Shares in Private Limited Company

  • Share certificate
  • Board resolution for verifying the Transferor’s notice
  • Transferor’s notice to the company
  • Offer letter sent
  • Objection letter from the existing shareholders
  • Share transfer agreement form along with the stamp duty returned
  • Board decision for transfer of shares

Procedure for Transfer of Shares in Private Limited Company

To initiate the procedure of Transfer of Shares in Private Limited Company, the following steps must be followed

  1. The Articles of Association or AOA must be reviewed before initiating the Transfer of Shares, and any restrictions mentioned must be identified.
  2. The Shareholders are required to submit a notice to the directors in writing. The notice must include information regarding the intention of the share transfer.
  3. The share transfer price must be identified as per the Articles of Association. The shares are first offered to the company’s existing shareholders as per the given price.
  4. The company’s existing shareholders are informed about the shares available for sale, the last date of purchase and the prices at which the shares are made available for sale. If any existing shareholders are interested in the purchase, the shares are sold to them. If no existing shareholders are interested in the purchase or extra shares are available, then they are made available to people outside the company.

To proceed with the Transfer of Shares in Private Limited Company, following steps are followed-

  1. The share transfer deed must be obtained in the directed form.
  2. The share transfer agreement must be completed properly and should be approved by the Transferor and the transferee.
  3. The the share transfer agreement must be stamped according to the stamp act & stamp work information in force in the State.
  4. The Transferor must take a witness signature in the share transfer agreement with their name, sign, and address.
  5. The share certificate or allotment letter must be attached to the transfer deed and given to the company.
  6. The company verifies and checks the documents and if approved, a new share certificate is issued in the transferee’s name.

Conclusion

Transfer of Shares in a Private Limited Company is done when one person transfers ownership of them to another. It might be a current employee or someone from the outside. The Companies Act of 2013, Section 44, further states that shares are movable property that may be transferred subject to the company’s AOA (Article of Association). Only when the company registers the transfer, the share transfer procedure will be done.  The company must provide the share certificate within one month of registration, to the transferee.  The transfer of shares in a private limited company is entirely done by following the norms made in AOA. In contrast, shareholders of a public ltd company can transfer their shares easily and freely.

Read Our Article:Concept of Transferability of Share in a Private Limited Company

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