Free transferability of share is one essential condition for Company form of business, subject to some restrictions under private companies. New Act, deals with substantially.
Statutory provisions related to transfer of share one should refer the following sources:
- • Section 56 of Companies Act, 2013
- • Rule 11 of Companies (Share Capital & Debentures) Rules 2014
- • Provisions given in model articles of association given in Table ‘F’ of Schedule-I
Generally a Private Company is guided by its Article of Association. As per Section 2(68) of Companies Act, 2013 Private Company restricts the transfer of shares and prohibit invitation to public to subscribe to any securities of the Company.
IMPORTANT:
- • Transfer in violation of Article Void: Share Transfer in violation of Article is void.
- • Transfer without consideration is Void: Share transfer without consideration is void.
- • Transfer in family arrangement: Transfer of shares on basis of family arrangement without complying with provision of Section 108 is valid.
PROCEDURE FOR TRANSFER OF SHARES BY PRIVATE LIMITED COMPANY:
A. INTIMATION:
Transferor should give a notice in writing for his intention to transfer his share to the company.
B. DUTY OF THE COMPANY:
- • The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.
- • Such price is generally determined by the directors or the auditors of the company as per book value of shares.
- • The company should also intimate to the members , the time limit within which they should communicate their option to purchase shares on transfer
- • If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.
C. EXECUTION FORM: Get the Share transfer deed in form SH-4 duly executed both by the transferor and the transferee. SH-4 should be
- • Duly stamped
- • Dated
- • Specifying the Name, Father Name, Address and Occupation, if any, of the transferee & Transferor.
- • Folio No. of both Transferor and Transferee.
- • Distinctive No, Certificate No. of share transferred.
- • No. of Share Transfer.
- • Nominal Value of Shares, Consideration Received.
- • Executed by or on behalf of the transferor and the transferee and
- • Time Period for deposit of Instrument for Transfer With Company
- • An instrument of transfer of shares i.e. Form SH.4 with the date of its execution specified thereon shall be delivered to the company within sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.
- • Where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
Value of share transfer stamps to be affixed on the transfer deed:
Stamp duty for transfer of shares is 25 paisa for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.
D. SHARE CERTIFICATE AND LETTER OF ALLOTMENT:
Share certificate must be lodged with the company, or if no such share certificate exists then a letter of allotment must be lodged with the company along with the instrument of transfer.
E. BOARD RESOLUTION:
Once the company will receive share transfer deed along with requisite documents then company will check the deed and documents then pass resolution for acceptance of same in the Board Meeting of the Company. After passing of Board resolution enter the name of transferee in the register of member as the beneficial owner of such shares. If the documentation for transfer of share is in order, board shall register the transfer by passing a resolution.
F. Delegation of Power:
Authority to transfer of shares can be delegated to one director and he can consider as “one man committee”. The Board can place restrictions on powers of the Committee e.g. allowing transfer upto prescribed numbers- say upto 1,000 shares. The Board or committee can approve transfers by circular resolution also.
As per Listing Agreement: Powers of transfer should be delegated to an office or a committee or registrar and share transfer agent who should attend to the work at least once in fortnight.
G. ISSUE OF SHARE CERTIFICATE OF TRANSFER:
The Company will within one month of passing of Board Resolution will issue share certificate in the favour of transferee. {56(4)(c)}. Company will endorse the name of Transferee behind the Share Certificates.
NOTE:
• Articles of private company shall restrict the right to transfer the company’s shares.
• Do not forget to cancel the stamps affixed at the time or before signing of the transfer deed.
• The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name and address.
• Share transfer can’t be declined if minor details are not given in share transfer form. Minor mistake in share transfer form should be ignored.
GIFT OF SHARES:
Gift of shares doesn’t become invalid for non-compliance of formalities prescribed under Companies Act, 2013.
STAMP OF ‘ROC’ ON SHARE TRANSFER FORM:
- • Practice of dating of stamp by ROC was introduced to stop problems created due to blank transfer deeds.
- • Companies Act, 2013 doesn’t contain any provision relating to dating of share transfer form. There is no provision in Rules also.
- Probable, reason is that after wide spread use of Demat shares on stock exchange; the provision has lost its usefulness.
TRANSFER OF SHARES AFTER EXPITY OF 60 DAYS:
If the instrument of transfer doesn’t delivered within prescribed period (60 Days),
Duty of the Company:
a) Company can register transfer of Shares on the basis of “Indemnity Bond” as decided by Board of Directors of the Company.
b) As a precaution, company should send a registered letter to the transferor, inviting objection, if any.
c) If no reply is received within a reasonable period as prescribed in the notice, transfer may be affected on obtaining indemnity bond.
STAMP DUTY ON SHARE TRANSFER:
Transfer Deed in Physical Form:
- • The share transfer deed should be ‘duly stamped’ if the transfer of shares is in physical form.
Transfer in Demat Form:
- • Transfer under Demat, stamp duty is not required.
Value of Stamp Duty:
- • The Stamp duty payable is Rs. 25 paisa per Rs. 100/- of Consideration. (Not on basis of Face Value of Shares).
Adhesive Stamp:
- • Stamp duty is payable by adhesive Stamps.
- • Adhesive stamp should contain the words “Share Transfer” on them.
- • Thus, ordinary stamps which are available in post offices etc. are not permissible for share transfer.
Value to be mentioned in transfer form for purpose of stamp duty:
- • It was held that value is required to be mentioned on the transfer form for purpose of stamp duty.
- • If stamp duty is not payable by transferee. The transfer deed will be valid even if value is not mentioned in the transfer deed.
Stamps can be affix on a separate paper and attached to transfer:
- • If space on share transfer form is inadequate, stamps can be affixed on a Separate sheet of paper, duly cancelled and attached to the transfer deed with cross reference. This is acceptable.
No stamp duty payable for transfer to nationalized banks:
- • A nationalized bank is not required to pay stamps duty on the value of shares at the time of transfer.
Cancellation of Stamp:
- • The adhesive stamps should be cancelled by drawing lines across or in some other way, so that can’t be used again. However, value of stamp should be visible.
- • If the share transfer deed bear stamps but it doesn’t not cancel, hence transfer can’t be recorded on basis of such transfer deed.
- • Cancellation of Stamp by Company is illegal.
- • If once a company transfers shares by mistake even if the instrument was not duly stamped, it can’t then apply for rectification of members.
PROCEDURE FOR TRANSFER OF PARTLY PAID UP SHARES:
Power of Board: The Board MAY decline to register the transfer if
- a) The transfer of partly paid shares to a person of whom they do not approve; or
- b) Any transfer of shares on which the company has a lien
Duty of Company: If partly paid up shares are received for transfer:
Company shall give notice to the transferee in form SH-5 and give 2 (Two) weeks time for objection, if any. Notice is not required if the partly paid shares are lodged by transferee.
- • NOC from transferee: As per Rule 11(3) if NOC is not received from the transferee then transfer can’t be recorded. But the section doesn’t say that if the transferee doesn’t reply within 2 weeks, it may be presumed that he has no objection. “Thus, in my view, positive no objection letter from his is required”
- • Liability of payment of balance amount lies with transferee.
SOME IMPORTANT POINTS:
- • The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of member in respect of such shares.
IN CASE OF REFUSAL BY COMPANY
- • The only restrictions that can be placed on transfer of securities are those specified in any law or in Article of the Company.
- • There is no general power to company to refuse share transfer.
- • Power of refusal to register transfer of shares is to be exercised by the company within thirty (30) days from the date on which the instrument of transfer or the intimation of transfer, as the case may be is delivered to the Company.
APPEAL AGAINST REFUSAL TO REGISTER TRANSFER BY PRIVATE COMPANY
- • As per section 58(3), a transferee of shares may appeal to the Tribunal against the refusal within a period of thirty (30) days from the date of receipt of the notice from the Company or
- • In case no notice has been sent by the company, within a period of sixty (60) days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the Company.
APPEAL AGAINST REFUSAL TO REGISTER TRANSFER BY PUBLIC COMPANY
- • As per section 58(4), a transferee of shares may, within a period of sixty (60) days of such refusal
or
- • Where no intimation has been received from the company, within ninety (90) days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.
PENALTY FOR NON-COMPLIANCE:
Where any default is made in complying with the provisions related to transfer of shares, the company shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/
SAMPLE BOARD RESOLUTION FOR APPROVAL FOR TRANSFER OF SHARE
The Chairperson informed the Board that Company has received 1 share transfer request, accompanied with share transfer deed duly filled in, signed and stamped along with other related documents, for approval of the transfer of shares of the Company. The matter was discussed and following resolution was passed unanimously:
“RESOLVED THAT the consent of the Board of Directors of the Company be and is hereby accorded for the transfer of equity shares as per the details given below:
1. No. Date of Registration of Transfer No. of Equity Shares Name of the Transferor Ledger Folio No. Transferor Name of the Transferee Ledger Folio No. Transferee
“RESOLVED FURTHER THAT (Name of Director), Director of the company be and is hereby authorized to make necessary endorsement on the reverse of the Share Certificate and to make entries in the register of share transfer and to do all other necessary act in this regards to give effect to the above resolution.”
BARE ACT LANGUAGE:
“Relevant” Text of Section 56 and Rule 11 are reproduced below for ready reference:
TRANSFER AND TRANSMISSION OF SECURITIES:
Section 56
(1)A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
(3) Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
(b) within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
(c) within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section (1) or, as the case may be, of the intimation of transmission under sub-section (2), in the case of a transfer or transmission of securities;
(d) within a period of six months from the date of allotment in the case of any allotment of debenture:
Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
(5) The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
Rule 11 of Companies (Share Capital & Debentures) Rules 2014: Instrument of transfer.-
1. An instrument of transfer of securities held in physical form shall be in Form SH.4 and every instrument of transfer with the date of its execution specified thereon shall be delivered to the company within sixty (60) days from the date of such execution.
2. In the case of a company not having share capital, provisions of sub-rule (1) shall apply as if the references therein to securities were references instead to the interest of the member in the company.
3. A company shall not register a transfer of partly paid shares, unless the company has given a notice in Form No. SH.5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of receipt of notice.
[Author– CS Divesh Goyal is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com or 08130757966 ]
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