Transfer Shares of Private Limited Company- Online Process

Overview
Procedure
Requirement
Documents
FAQs

How to transfer shares in a private limited company?

The term 'shares' refers to a company's ownership interest. The term "transferring shares" refers to the voluntary transfer of stock from one person to another. In general, a company's shares can be freely transferred. However, there may be specific restrictions on the transfer of shares in the case of a private limited company. The Articles of Association (AOA) of private limited companies govern these share transfer restrictions.

The proof of being the owner of a private limited company is indicated by the shareholding pattern. Thus, in order to transfer ownership or introduce new investors in a private limited company, the company's shares must be transferred.

In this article, we will look at how to transfer shares in a private limited company while keeping the terms of the articles of association (AOA) in mind.

Restriction on transfer of shares in a private company

The restriction on the transfer of shares in a private company is generally in two formats:

1. Rights of preemption

If the shareholder wishes to sell some of his shares, he must first offer them to the existing members at a price set by the directors of the private limited company. If the current shareholders are not interested, he can make the same offer to an outsider.

2. Directors to Refuse

The director of the private limited company has the power to refuse the registration of any transfer of shares under some cases as prescribed in the AOA.

Share transfer in a private limited company procedure - in 5 easy steps

Step 1: Reviewing the AOA

Whether a private limited company can transfer shares or not is regulated by the AOA of that respective company. Thus, the member must review the AOA and make decisions accordingly. If there are any restrictions related to such a transfer, those must be addressed.

Step 2: Notice about Share Transfer

The interested shareholder is required to give notice in writing to the director of the company that he intends to transfer the shares of the company.

Step 3: Determination of Price

The price at which the shares are to be transferred will be based on AOA and will be determined by the directors of the company or the auditor of the company.

Step 4: Notice of availability of Shares

The company is then required to give notice to the existing shareholders about the availability of shares, the price at which they are being offered, and the last date to purchase the same.

Step 5: ROC filing

The documents will then be verified, and once approved, the transfer will be registered by the board. The registration will be accomplished through the passage of a board resolution.

If the board rejects the share transfer, it will notify the transferee within 30 days of receiving the share deed. Furthermore, the transferee has 30 days from the date of service of the rejection notice to file an appeal with the tribunal.

The board will not notify the ROC of the share transfer immediately, but it will be included in the company's annual return in an e-form MGT-7 and will be notified to the ROC at that time.

What are the requirements to transfer shares of a private limited company?

In order to effect the share transfer in a private limited company, the interested shareholders are mandated to fulfill the following requirements to change their shareholding in the company as per their desire:

In the form as prescribed, the shareholders will generate the share transfer deed.
Next, after successful signature of the transferor and transferee the share transfer deed will be executed.
Stamping procedure will be carried out of the share transfer deed according to the Indian Stamp Act.
The shareholder must also have a witness who will sign the transfer deed with his name and address.
The shareholder is then required to deliver the share certificate with the attached transfer deed to the company.

After successfully following these requirements, Legalbabu will file the documents in ROC, and if they are approved, new share certificates will be issued in the name of the transferee.

Documents required to transfer shares in a private limited company

Following are the documents required while transferring shares in a private limited company:

The notice of the share transfer.
Notice of board resolution which examines the transfer request.
Offer letter being offered to the current shareholder by the company.
Objection letter if any by the present shareholders
The Share Transfer agreement must be in the prescribed format with its stamp duty.
The Share Certificates.
The letter contains the board's decision for filing the transfer of shares.
Share Transfer Deed.

FAQS

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Have questions about transferring shares in a private limited company?

We have got you covered:

How do I transfer private shares?

Private shares can only be transferred if the AOA of the particular private company permits. The interested shareholders are then required to notify the director of the company in writing, and thereby the price of such a transfer will be determined. Later, a notice of its availability will be shared with the existing shareholders. In this process, one can transfer private shares.
What are the rules for the transfer of shares?

The rules for the transfer of shares are - Obtaining the share transfer certificate, the share transfer agreement signed by the transferor and transferee, Share Certificate to be duly stamped.
Can shares be transferred to another person?

Yes, shares can be transferred to another person.
What documents are needed for a share transfer?

Original share certificate, certificate of stamp duty payment, valuation, and the share transfer agreement, share transfer deed duly signed by the parties, identity and address proof of the transferor and transferee. These are the documents required for a share transfer.
Is the transfer of shares taxable?

Yes. Share transfer of a private limited company comes under capital gains income under the Income Tax Regulations.
What are the types of transfers?

There are three types of transfers: issues, purchases, and transfers.

In the case of an issue, the shares are transferred by the company to the existing shareholder. In exchange, the company can purchase its own shares from its existing shareholders. In the case of a transfer of shares, shares are transferred from one shareholder to another.
How do I transfer shares without tax?

You can transfer shares without paying tax by selling the shares within the exemption bracket. In this case, the exemption bracket is - if you sell your shares (after holding them for one year or more than one year) under INR 1 lakh, you do not have to pay any taxes.
What is the procedure for transferring Private Limited Company shares?

Obtaining the share transfer deed, signing the deed, paying stamp duty fees on the transfer deed, obtaining the signature of a witness on the share transfer deed, and finally delivering the deed to the company are the steps in the transfer of shares procedure.
How do you remove someone as a shareholder?

In order to remove someone as a shareholder, the shareholder removal resolution must be passed with a majority vote of 75%.
Can you remove a shareholder without their consent?

Yes, a shareholder can be removed without consent when he violates the company’s bye-laws and shareholder agreements.
Can I transfer my shares to a family member?

Yes, transferring shares to another family member is a voluntary act.
How are shares transferred on death?

In case of a death, the shares are transferred via offline mode. The shares are transferred to the joint holder, nominee, or legal heir of the deceased person. This is called the transmission of shares. It must also be noted that the transfer of shares in the event of death cannot be made through online mode; one needs to visit the branch office of the depository participant where the Demat account of the account holder is present. A death certificate, succession certificate, / Probate of the will, /Letter of administration is mandatory for the transmission of shares.
Can you change a shareholder?

Yes, at any point in time after the incorporation of the company, you may change or introduce new shareholders. The existing shareholders can transfer their shares to a new member, or the company can issue new shares by inviting other new members.
How long does it take to transfer company shares from one to another?

When shares are transferred within one repository, it takes less than 30 minutes. While the same share transfer can take 3 to 4 hours when transferred from one repository to another.

Easily transfer shares in a private limited company

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