Last updated: March 18th, 2020 6:20 PM

How to Transfer Shares of Private Limited Company

Private limited companies are closely held companies with less than 200 members. The transfer of share of a private limited company are governed by the provision of the Companies Act, 2013. According to the Companies Act of 2013, a private limited company cannot invite the public to subscribe to any securities of the company. Also, a private company enjoys a special right of restricting the transferability of shares, which enables them to maintain ownership. However, the restriction on transfer of shares in a private company is not applicable in certain cases such as, on the right of a member of the company to transfer his share to his legal representative & in event of death of a shareholder, the transfer of share to his legal heir cannot be restricted. It is also to be noted that the restriction cannot be made as prohibition but only by the Articles of Association (AoA) of the company. Transferability of shares in private limited companies make convenient for shareholders to change their stake amongst the members. Therefore, private limited companies are preferred by entrepreneurs over the other business model. Therefore, if one want's to transfer shares which hold in private limited companies, then one have to go through the following steps:  

Steps for Transferring Shares of Private Limited Company

1. Obtain a share transfer deed
2. The share transfer deed must be executed by the transferor and transferee or their agents
3. Share transfer deed must bear stamps as per the provisions of Indian Stamps Act and Stamp Duty Notification
4. Witness to sign the share transfer deed with name and permanent address
5. Attaching the share certificate with the share transfer deed and deliver it to the company
6. If all the documents are found to be in prescribed order, the board of director shall register the transfer by passing a resolution. Finally, share transfer details should be given to the registrars of companies in annual return of the company in form MGT-7.
7. However, on refusal of such transfer of shares, a notice is to be served to the transferee within thirty days of receipt of such share deed.

What happen if a company refuses to register transfer of shares?

If a private limited company refuses to register the transfer of or the transmission of the right to shares. Then company shall within a period of thirty 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 to the transferor and the transferee giving reasons for such refusal. Then, the transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receipt of the notice or in case of notice has been sent by the company, within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission.

Transfer of Partly Paid Up Shares

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.The transferee has given no objection to the transfer within two weeks from the date of receipt of notice.

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