Private limited companies are those companies which consist of less than 200 members. The transfer of share of a private limited company is administered by the provision of the Companies Act, 2013. As per the Companies Act of 2013, a private limited company can't invite the public towards subscribing to any securities of the corporation. Additionally, a private company enjoys a special right of limiting the transferability of shares, which allows them to maintain ownership. However, the restriction on transfer of shares in a private company is not applicable in few cases for example, on the right of a member of the corporation to transfer his share towards his legal representative and in event of death of a shareholder; the transfer of share towards his legal heir cannot be restricted. It is likewise to be noted that the restriction can't be made as prohibition but only by the Articles of Association (AoA) of the company.
Transfer of shares in private limited companies makes convenient for shareholders for changing their stake amongst the members. In this manner, private limited companies are preferred by entrepreneurs over the private business model.
The persons who can share transfer in Private Limited Company are;
• Subscribers to the memorandum.
• Legal Representative, in case of a deceased.
• Transferor.
• Transferee.
• Company (whether listed/ unlisted).
How to do share transfer in private limited company
Steps required for share transfer in private limited company.
• One must obtain a share transfer deed.
• The share transfer deed should be executed by the transferor and transferee or their agents.
• Share transfer deed should bear stamps as per the provisions of Indian Stamps Act and Stamp Duty Notification.
• Witness towards signing the share transfer deed with name and permanent address.
• Attaching the share certificate with the share transfer deed as well as deliver it to the corporation.
• When all the documents are found to be in a prescribed order, the board of director would register the transfer by passing a resolution.
• Finally, share transfer details must be given to the registrars of companies in the annual return of the company in form MGT-7.
On refusal of such transfer of shares, a notice must be served to the transferee within 30 days of receipt of such share deed.
Share transfer in private limited company in India.
The transfer of shares must be carried out as per the Companies Act, 2013.
Firstly, the transfer deed requires to be obtained in the prescribed form, that is, Form SH-4 endorsed through the prescribed authority.
The instrument of transfer might not be in the prescribed form (Form SH-4), where a director or nominee transfers shares on behalf of;
a. another body corporate under section 187 of the Companies Act, 2013;
b. a corporation owned or controlled by the central or state Government;
c. Shares transferred by means of deposit as a security for repayment of any loan or advance If they are made with-
State Bank of India.
Any scheduled bank.
Any other banking company.
Financial Institution.
Central Government.
State Government.
Any firm that was held by the or State Government.
Trustees who have filed the declarations.
d. For the transfer of debentures, a standard format could be made use of as the mechanism of transfer.
3. One must get the Articles of Association in case of shares, trust deed in the case of debentures and transfer deed registered either by the transferor and the transferee or on their behalf consistent with the provisions of the Companies Act, 2013.
4. As per the Indian Stamp Act and stamp duty notification in force in the state concerned, the transfer deed requires having stamps.
5. Checking that the stamp affixed on the transfer deed is cancelled at the time of or before the signing of the transfer deed.
6. An individual who gives his signature, name and address as approval for transfer should see the transferor and the transferee sign the share/debentures transfer deed in individual.
7. The relevant share/debenture certificate or allotment letter with the transfer deed should be attached and sent to the corporation.
8. In case the application made by the transferor is for partly paid shares, the corporation has to duly notify the amount due on shares/debentures towards the transferee. Also, no objection from the transferee is required within two weeks from the date of receipt of the said notice.
9. Attach the same value stamp on a written application in case the signed transfer deed was lost. The board here might register the transfer on specific terms of indemnity as it thinks fit.
10. In case the shares of the corporation are listed in a recognized stock exchange, then the business shall not charge any fee for registration relating to the transfers of shares as well as debentures.
What happens if a corporation refused to register the transfer of shares?
If a private limited company refuses towards registering the transfer of or the transmission of the right to shares, then the company shall within a period of 30 days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, send notice of the refusal towards the transferor and the transferee giving reasons for such refusal.
At that point, the transferee might appeal to the Tribunal against the refusal within a period of 30 days from the date of receipt of the notice or in case of notice has been sent by the corporation, within a period of 60 days from the date on which the instrument of transfer or the intimation of transmission.
Penalties
For the company the minimum penalty is Rs. 25,000 and the maximum penalty is Rs. 5,00,000 For an officer In default the minimum penalty is Rs. 10,000; and maximum penalty is is Rs. 1,00,000.
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