Learn What is Share Transfers. A share transfer means moving ownership of shares from one person to another. It happens when an existing shareholder decides to sell, gift, or otherwise transfer their shares to another individual or entity. In simple terms, it changes the ownership structure of the company while keeping the total number of shares the same.
🧾 When Share Transfer Happens
Share transfers usually occur in the following situations:
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When an investor sells their shares to another person.
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When a partner or founder exits the company.
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When shares are gifted to relatives.
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When an employee holding ESOPs leaves the company.
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When a private company needs to bring in a new investor.
These situations require following a proper legal procedure to ensure the transfer is valid.
⚙️ Step-by-Step Process of Share Transfer
Here’s how the process generally works:
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Obtain Share Transfer Deed (Form SH-4):
The transferor (seller) and transferee (buyer) must fill out Form SH-4. This form includes details like the number of shares, names, and consideration amount. -
Attach Share Certificates:
The original share certificates must be attached with Form SH-4. If the certificates are lost, the company may issue duplicates after following due procedure. -
Stamp Duty Payment:
Pay stamp duty as per the state laws, generally 0.25% of the share value being transferred. -
Submission to the Company:
The completed Form SH-4 and share certificates must be submitted to the company within 60 days of execution. -
Verification by the Company:
The company checks all details, confirms the signatures, and ensures stamp duty has been paid. -
Approval by the Board of Directors:
The company’s board must approve the share transfer during a board meeting. -
Issue of New Share Certificates:
Once approved, the company issues new share certificates in the transferee’s name and updates the Register of Members.
📑 Key Legal Requirements
| Requirement | Details |
|---|---|
| 🧾 Form Used | Form SH-4 (Share Transfer Deed) |
| 🏦 Stamp Duty | 0.25% of share value (approx.) |
| 📅 Timeline | Within 60 days from execution |
| 🏛️ Board Approval | Mandatory for private companies |
| 📘 Register Update | Register of Members must reflect the new shareholder |
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🚫 Restrictions on Share Transfer
Private limited companies often include restrictions in their Articles of Association (AOA). Common restrictions include:
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Shareholders must offer shares to existing members first (Right of First Refusal).
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The company can refuse registration of transfer if it violates the AOA.
These restrictions help maintain control and prevent unwanted outsiders from becoming shareholders.
✅ Key Takeaways
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Share transfer changes ownership of shares but not the share capital.
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Use Form SH-4 and submit it within 60 days.
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Ensure stamp duty and board approval are completed.
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Always check the Articles of Association before transferring shares.