Transfer of Shares

The transfer of shares is a significant feature of a company, distinguishing it from a partnership. Under the Companies Act, 2013, shares are considered movable property and are transferable in the manner provided by the Articles of Association (AoA).

The primary provisions are governed by Sections 56 and 58 of the Act.

1. General Principles of Transfer

• Movable Property: According to Section 44, shares or other interest of any member in a company are movable property, transferable in the manner provided by the AoA.

• Nature of Companies:

  • Public Company: Under Section 58(2), the shares of a public company are freely transferable.

  • Private Company: Under Section 2(68), a private company must, by its Articles, restrict the right to transfer its shares (usually via "Pre-emption Rights" where shares must first be offered to existing members).

2. Procedure for Transfer (Section 56)

A company cannot register a transfer of shares unless a proper "Instrument of Transfer" is delivered.

• Form SH-4: The transfer must be executed using Form SH-4 (Securities Transfer Form).

• Execution: The form must be duly stamped (as per the Indian Stamp Act), dated, and signed by or on behalf of both the Transferor (seller) and the Transferee (buyer).

• Time Limit: The instrument of transfer, along with the share certificate (or letter of allotment), must be delivered to the company within 60 days from the date of execution.

• Partly Paid Shares: If an application for transfer of partly paid shares is made by the transferor alone, the company must give notice to the transferee. The transfer is registered only if the transferee raises no objection within two weeks.

3. Timeframe for Issuance (Section 56(4))

Once the transfer is approved, the company must deliver the new share certificates:

• Within one month from the date of receipt of the instrument of transfer.