Share Transfer Procedure for Private Limited Company
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Share Transfer Procedure for Pvt Ltd Company
Updated on December 31, 2022 04:39:28 PM
The process of share transfer in a Private Limited Company is a well-defined method to shift the ownership of shares from one shareholder to another. Shares signify ownership units within a company and can be bought, sold, or transferred. In contrast to public companies, shares in a Private Limited Company are not traded openly; they can only be sold or transferred to other individuals. To ensure compliance with regulatory requirements, it is advisable to file ROC (Registrar of Companies) compliances with the assistance of professional utilities.
In India, the Companies Act of 2013, along with the rules and guidelines set forth by the Ministry of Corporate Affairs (MCA), govern the share transfer procedure in a Private Limited Company. In this article, we will delve into the step-by-step process of share transfer in such companies.
Share Transfer Restrictions
The Companies Act 2013 sets forth conditions for naming companies, whether they are Private Limited, OPC, or Public Limited. When selecting a name, the following conditions must be considered:
The name applied for must not resemble the name of an already registered company or trademark. Mere joining of separate words or using the plural version of an existing name does not make it unique.
Names that are too general, such as “Cotton Company Private Limited,” are restricted.
The name of the company cannot start with the name of a person, for example, “Ankita Private Limited.”
The proposed name shall be considered undesirable if it violates the following conditions:
Violates Emblem & Name Act
Violates Trademark
Includes offensive or misleading words
The name selected for the company shall align with the objects of the company.
If the company is incorporated to engage in the business of providing financial services such as chit fund, financing, leasing, etc., it shall indicate such activities in its name.
The name shall not include words that indicate any constitution or legal person such as LLP, Trust, HUF, etc.
The name of a Private Company shall end with “Private Limited,” a One Person Company with “OPC Private Limited,” and a Public Company with the word “Limited.”
How to Transfer Shares in a Private Limited Company
The first step in the share transfer process is to obtain a Share Transfer Deed, which is a legal document that transfers the ownership of shares from the transferor (seller) to the transferee (buyer). The Share Transfer Deed should be executed by both parties and must be stamped and signed in accordance with the Indian Stamp Act, 1899.
The Share Transfer Deed should contain the following details:
Name of the company
Number and class of shares being transferred
Name, address, and PAN of the transferor and transferee
Consideration for the transfer of shares
Date of execution
The transferor should obtain a No Objection Certificate (NOC) from the company, which confirms that the company has no objection to the transfer of shares. The NOC should be obtained within two months of the execution of the Share Transfer Deed.
The transferor should submit a written request to the company along with the original share certificate, the Share Transfer Deed, and the prescribed fee. The company will verify the documents and issue the NOC if there are no objections.
The transferor should submit the Share Transfer Deed, along with the original share certificate and NOC, to the company within 60 days of the execution of the Share Transfer Deed.
The company will verify the documents and update its records to reflect the transfer of shares. The company should also issue a new share certificate in the name of the transferee.
The board of directors of the company will consider the transfer request and approve or reject it based on the provisions of the Articles of Association and the applicable laws and regulations.
If the transfer is approved, the board will record the transfer in its minutes and update the shareholders’ register.
The Share Transfer Deed is subject to stamp duty, which is payable as per the applicable rates in the respective state. The stamp duty should be paid before the transfer documents are submitted to the company.
The company should file the necessary forms with the Registrar of Companies (RoC) within 30 days of the transfer of shares. The forms to be filed include Form SH-4 (for transfer of shares) and Form MGT-7 (for filing annual returns).
Documents Required for Share Transfer in Pvt Ltd Company
The following are the documents required for share transfer in a Private Limited Company:
Share Transfer Deed: This is the primary document required for share transfer and must be executed by the transferor and transferee.
Share Certificate: The original share certificate must be submitted by the transferor along with the share transfer deed.
PAN Card: A copy of the PAN Card of the transferee is mandatory for the transfer of shares.
Board Resolution: The Board of Directors of the company must approve the transfer of shares and pass a Board Resolution to that effect.
No Objection Certificate (NOC): The company may also require a NOC from the transferor stating that there is no objection to the transfer of shares.
Indemnity Bond: The transferor may be required to execute an indemnity bond indemnifying the company against any losses that may arise from the transfer of shares.
Payment of Stamp Duty: Stamp duty must be paid on the share transfer deed at the rate applicable in the respective state.
It is advisable to consult with a professional to ensure that all the necessary documents are in order and that the share transfer process is executed smoothly and in compliance with applicable laws and regulations. You may contact our team at Professional Utilities for the share transfer process and Company Incorporation.
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