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Overview

What is a Share Transfer?

Shares of a company are movable property and are, subject to the provisions of the Companies Act, 2013 and the company's Articles of Association, transferable from one person to another. “Share Transfer” refers to the voluntary transfer of ownership of shares by an existing shareholder (transferor) to another person (transferee), whether an existing shareholder or a new investor, in exchange for consideration. Share transfer is governed by Section 56 of the Companies Act, 2013 read with the Companies (Share Capital and Debentures) Rules, 2014, and, for a private company, is additionally subject to any restrictions contained in its Articles of Association.

NOTE ON SHARE TRANSFER

Procedure for Transfer of Shares under Section 56 of the Companies Act, 2013

1. Introduction

Shares of a company are movable property and are, subject to the provisions of the Companies Act, 2013 and the company's Articles of Association, transferable from one person to another. “Share Transfer” refers to the voluntary transfer of ownership of shares by an existing shareholder (transferor) to another person (transferee), whether an existing shareholder or a new investor, in exchange for consideration. Share transfer is governed by Section 56 of the Companies Act, 2013 read with the Companies (Share Capital and Debentures) Rules, 2014, and, for a private company, is additionally subject to any restrictions contained in its Articles of Association.

Share transfer is distinct from “transmission of shares,” which refers to the transfer of shares by operation of law, such as on the death, insolvency, or lunacy of a shareholder, and follows a different process not requiring an instrument of transfer. This note deals specifically with voluntary share transfer between living persons (transfer inter vivos).

2. Salient Features of Share Transfer

Instrument of transfer – Form SH-4 mandatory

Transfer of shares must be effected through a proper instrument of transfer in Form SH-4, duly stamped, dated, and executed by or on behalf of both the transferor and the transferee.

Restrictions under Articles for private companies

A private company's Articles of Association usually contain restrictive provisions regarding share transfers (such as pre-emption rights or right of first refusal for existing shareholders) that must be meticulously followed before executing an external transfer.

Delivery of SH-4 to the Company

The executed and stamped Form SH-4, along with the relevant share certificate (or letter of allotment if no certificate is issued), must be delivered to the company within 60 days from the date of its execution.

Board Approval and Registration

Upon receipt of the valid transfer instrument, the company's Board of Directors considers and approves the transfer in a Board Meeting. The company then updates its Register of Members (Form MBR-1) and endorses the share certificate in favor of the transferee within 30 days.

3. Frequently Asked Questions (FAQs)

Collapsible FAQs (or accordions) let visitors browse questions and click to expand answers, keeping pages uncluttered

Can a company refuse to register a transfer of shares? +
Ans. A company (through its Board) may refuse to register a transfer only for reasons permitted under the Act and its Articles, and must communicate the refusal, along with reasons, to both parties within 30 days from the date the instrument of transfer was delivered to the company.
What can a shareholder do if the company refuses to register a share transfer? +
Ans. An aggrieved transferor or transferee may file an appeal with the National Company Law Tribunal (NCLT) against the company's refusal to register the transfer, within the time limits prescribed under Section 58 of the Companies Act, 2013.
Is stamp duty payable on every share transfer? +
Ans. Yes, stamp duty is payable on transfer of shares, whether in physical or dematerialised form; for physical shares, it is paid on the instrument of transfer, while for dematerialised shares, it is collected electronically through the depository system at the time of the transaction.
Does a change in shareholding due to a share transfer need to be reported to the ROC? +
Ans. A simple transfer of already-issued shares between existing/new shareholders does not require a separate ROC filing at the time of transfer (unlike allotment of new shares, which requires Form PAS-3); however, the updated shareholding is reflected in the company's Annual Return (Form MGT-7/7A) filed for that financial year, and other filings (e.g., relating to significant beneficial ownership) may be triggered depending on the extent of the change.


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