In Many Small and Private Companies, it generally happens that equity stake gets diluted from one person to another, Due to ill health Some times Members dilute their equity and to introduce new family member in the Business transfer of shares take place.
As per Companies Act, 2013 No Company shall register Transfer of shares unless a proper instrument of transfer is not executed by paying requisite stamp duty and specify complete details of Transferee & Transferor.
If you want to know more about the procedural compliance for transfer of shares in case of Private companies then this write is for you.
- How to Transfer Shares?
In General terms, a Share transfer Deed in prescribed format SH-4 shall be executed specifying time, date, no. of shares, name of transferor & transferee, amount of consideration, address, occupation, distinctive no. of shares and other necessary details shall be executed and stamped properly.
Thereafter both the transferor & transferee will prepare sale/purchase invoice and apply to Board of directors for registration of transfer of shares.
Board of directors on receipt of application for registration of transfer of shares will conduct Board meeting to approve the transfer of shares and make requisite entries in registers and certificates to complete share transfer.
2. Time limit to execute and deliver Share transfer instrument?
According to section 56 of Companies Act, 2013 a Share transfer instrument must be executed and delivered to company by transferor & transferee within a period of 60 days from the date of execution accompanied by share certificates to be transferred.
3. What if incase Instrument of transfer is lost before delivery of the same to the company?
As per Section 56 where Instrument of transfer is lost post-execution or not delivered within the prescribed period of 60 days, the company may register the transfer of shares on such terms of indemnity as the board of directors find suitable.
But in case of transmission of shares in case of death of subscriber the board is bound to register the transmission and under obligation to transmit the shares to the nominee of the subscriber or legal heir of subscriber.
4. Amount of Stamp Duty to be paid on Share Transfer?
Irrespective of the states in India Amount of stamp duty is Fixed at the rate of 0.25% of the total consideration amount, which is paid by pasting court fee stamp of requisite amount.
Presently in a few states of India E-stamp duty is available in case of the huge amount of stamp duty is to be paid in such cases E-stamp duty is a convenient option to opt.
5. What if in case of transfer of partly paid up shares?
In case of transfer of Partly Paid-Up shares transferor alone shall make an application to the company for register of Transfer of shares but shares transfer shall not be registered unless company shall deliver notice of the application to the transferee for taking No Objection Certificate.
If transferee reply within 2 weeks of receipt of notice of application for transfer of shares and transferee has no objection in the same only then the company can approve the application of transferor.
This clause is just to avoid fraud or misrepresentation, as the person having better tittle only then he should transfer the shares and in the case where the application is submitted by both the parties then no NOC is required.
6.What is the procedure for transfer of shares in Depository System?
Step by Step Guide to transfer shares by depository.
| Step:1 | The transferor has to give delivery instructions to the Depository Participant No. 1 (DP1) to transfer the shares and debit his account against the clearing member 1 pool account with DP1. The clearing member-1 pool gives a parallel receipt instruction to DP1 to accept the transfer in his/her clearing account. Especially, if standing receipt instruction for all credits into his clearing account is not given. In turn, the securities are transferred from selling client A/c to clearing member pool A/c with DP1. |
| Step:2 | Delivery instruction is given to Clearing Corporation (CC) by the clearing member 1 to debit his Clearing Member 1 Pool A/c and credit his Clearing Member1 Delivery A/c. The transfer takes place on the execution date which is mentioned in the instruction. Delivery which is supposed to be given to CC instruction will be as per final/ net delivery obligation. |
| Step:3 | Till settlement day securities which are to be transferred lay in the clearing member-1 Delivery A/c. Transfer of Securities lying in clearing member-1 delivery A/c automatically transferred to the Clearing Corporation/Clearing House at the time of payment in. There is no requirement of debit instruction for this transfer. There is no set deadline time for pay-in of securities to the Clearing Corporation/Clearing House as it varies from one exchange to another. |
| Step:4 | Now, automatic transfer of securities from Clearing Corporation/Clearinghouse to clearing member 2 pool A/c with Depository Participant 2 (DP 2) at the time of payout takes place and no instruction is required because of the automatic transfer. |
| Step:5 | Securities are transferred from clearing member2 receipt A/c to clearing member 2 pools A/c. Receipt account of clearing members is nothing more than a transit account used for maintaining the audit trail. |
| Step:6 | Clearing Member 2 gives a delivery instruction to DP 2 to debit his Clearing Member 2 Pool A/c and credit Buying Client A/c with DP 2. The buyer gives parallel receipt instruction to DP 2 to accept in his account securities transferred from Clearing Member 2 Pool A/c through DP 2 unless he has not given a standing instruction to receive credits to his account. |
| Step:7 | The transfer of securities takes place from Clearing Member 2 Pool A/c o Buying Client A/c with DP 2. The securities will remain in clearing member pool A/c until one receives the delivery instruction- No Stamp duty is required in case of share transfer in DEMAT form. |
Concluding Note:
The Shares of the company are freely transferable but they are governed by the Article of association of the company and the same should contain proper terms and conditions regarding the same, by completing aforementioned steps one can easily transfer shares.
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