Transfer of shares means the transfer of ownership of the shares from one person to another.

Transfer of
shares is effected by the removing the name of the exiting shareholder from the register of members and
by inserting the name of the transferee in place of the transferor in the register of members. Shares of a
public company are freely transferable whereas there are certain restrictions on the transfer of shares of a
private company.

Meaning
Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as
represented in a share of the company) from a shareholder who wishes to not be a member in the
company any more to a person who wishes of becoming a member. Thus, shares in a company are
transferable like any other movable property in the absence of any expressed restrictions under the articles
of the company.

Persons involved in the transfer

o Subscribers to the memorandum.
o Legal Representative, in case of a deceased.
o Transferor.
o Transferee.
o Company (whether listed/ unlisted).

Procedure for transfer of shares as per the Companies Act, 2013

1. Firstly, the transfer deed needs to be obtained in the prescribed form i.e. Form SH-4, endorsed by
the prescribed authority.
2. The instrument of transfer may not be in the prescribed form (Form SH-4) in the following
cases:-

 Where a director or nominee transfers shares on behalf of another body corporate under section
187 of the Companies Act, 2013;
 Where a director or nominee transfers shares on behalf of a corporation owned or controlled by
the central or state Government;
 Shares transferred by way of deposit as a security for repayment of any loan or advance If they
are made with any of the following:-

1. State Bank of India; or

2. Any scheduled bank; or
 3. Any other banking company; or
4. Financial Institution; or
5. Central Government; or
6. State Government; or
7. Any corporation held by the Central or State Government; or
8. Trustees who have filed the declarations.

d. For transferring debentures, a standard format can be used as the instrument of transfer.

3. Get the Articles of Association in case of shares, trust deed in the case of debentures and transfer
deed registered either by the transferor and the transferee or on their behalf in accordance with the
provisions of the Companies Act, 2013.
4. According to Indian Stamp Act and stamp duty notification in force in the state concerned, the
transfer deed should need to have stamps. The present stamp duty rate for transfer of share is 25
paise for every one hundred rupees of the value of the share or part thereof. That means for shares
valued Rs. 1050, the stamp duty will be Rs. 2.75.
5. Check that the stamp affixed on the transfer deed is cancelled at the time of or before the signing
of the transfer deed.
6. A person who gives his signature, name and address as approval for transfer must see the
transferor and the transferee sign the share/debentures transfer deed in person.
7. The relevant share/debenture certificate or allotment letter with the transfer deed must be attached
and sent to the company.
8. In case the application made by the transferor, is for partly paid shares, the company has to duly
notify the amount due on shares/debentures to the transferee. Also, a no objection from the
transferee is required within two weeks from the date of receipt of the said notice.
9. Affix the same value stamp on a written application if signed transfer deed has been lost. In this
case, the board may register the transfer on specific terms of indemnity as it thinks fit.
10. If the shares of the company are listed in a recognized stock exchange, then the company cannot
charge any fee for registration of transfers of shares and debentures.

Note: A company shall not register a transfer of partly paid shares in these two cases:

 The company has given a notice in Form No. SH.5 to the transferee
 Till the transferee has given a no objection certificate to the transfer within two (2) weeks from
the date he received the notice from the company.
Procedure for transfer of shares in simple term:

 The instrument of transfer should be dully filed and signed by both the transferor and transferee.
 The instrument of transfer must be in the form prescribed by the government.
 Every instrument of transfer must bear the stamps of the requisite value as per the Indian stamps
act.
 The instrument of transfer must be delivered to the company for registration within 60 days from
the date of execution along with the share certificate or the letter of allotment, as the case may be.
 If partly paid up shares are to be transferred then the company must give notice to the transferee
and if the transferee does not make any objection within two weeks from the date of receipt of the
notice the company can register the transfer.
 After all the above steps have been duly complied with, board of directors approval for the
registration of transfer is obtained. After the approval of the board, the company registers the
transfer by striking off the transferor’s name from the register of members and entering the name
of the transferee in its place.

Documentation
 1. Notice by transferor to Company
 2. Board Resolution for considering the Notice by transferor to Company
 3. Letter of Offer made by company to existing shareholder
 4. Dissent letter from existing shareholders
 5. Share Transfer Deed in SH-4 form along with stamp duty paid
 6. Share certificates
 7. Board resolution for registering transfer of shares

Flowchart – Procedure for Share transfer:

Time limits:
A Company having share capital: - The Company shall not register transfer of securities of the
Company or member’s interest in the Company other than beneficial owners without a proper
instrument of transfer within a period of 60 days from the date of execution.

Application by transferor alone:- The transfer shall not be registered until and unless the company
gives notice of the application to transferor and transferee gives no objection certificate within 2
weeks from receipt of the notice.

Company shall deliver certificates of all securities allotted/ transferred/ transmitted in the following
cases and within the following mentioned time limits:-

o In case of subscribers to memorandum – within a period of 2 months from the date of

incorporation.
o In case of allotment of any of its shares – within a period of 2 months from allotment
date.
 o Receipt by the company of the instrument of transfer/ intimation of transmission – within
a period of 1 month from the date of receipt.

o Allotment of debenture – within a period of 6 months from the date of allotment.

Penalties:
For company – Minimum is Rs. 25,000 and maximum is Rs. 5,00,000 For an officer In default –
Minimum is Rs. 10,000; and maximum is Rs. 1,00,000

Membership in a Company:
Section 41 of the companies act 1956, defines a member as a person who has signed the memorandum of
association and every other person who agrees in writing to become a member and whose name is entered
in the register of members.

By definition, the term “Member” in relation to a company means, one who has agreed to become the
member of the company by entering his name into the ‘Register of Members’. Every person who has
agreed in writing to become a part of the company and also holds shares of the company is considered the
‘Member of the Company’ and is said to hold membership in a company. The name of the member of the
company is entered as ‘Beneficial owner in the record of depository’.

In order to acquire the membership of the company, the following two elements must be presented:

 An Agreement to become a member.

 Entry of the name of the person so agreeing, in the Register of members of the company.

The enlisted person should be in a capable of entering into a contract with the company. But a bearer of
share warrant is not a member of the company. Finally, to become the registered member of the company
the person should be satisfactory as an asset to the company.

Who can become a member?

Any person who is competent to contract of the Indian contrast may become a member of a company .this
is company .this is subject to the provision of the memorandum and the article of the company .the article
may provide that certain persons cannot become member of the company.

A minor is incomplete to become the member of a company an agreement with a minor is absolutely
void.
The general rule is that any person who is competent to contract may become a member. A contract to
purchase shares is like any other contract and both the contacting parties must be competent to enter in to
the contract. The provisions of the Indian contract act, 1872, regarding the persons who can contract
would apply. The membership rights of some categories of persons are discussed below:

Minor:
A minor in India cannot be a member because a contract with a minor is absolutely void here. Neither a
minor nor his legal guardian can be made responsible for the payment of calls. Under the English law a
minor can be a member of the company because a contract with a minor is voidable and not void. A
minor in India may apply for and receive an allotment of shares subject to a right to repudiate liability on
them before or within a reasonable time after attaining full age.

Company:
A company can become member of another company if so authorized by its articles subject to certain
restrictions of section 372. But a company cannot be a member of itself. A company cannot purchase its
own shares because it involves reduction of capital which is not permissible without the sanction of the
court.

Subsidiary company:
A subsidiary company cannot be a member of its holding company. Any allotment or transfer of shares in
a company to its subsidiary is void. This provision will not apply where the subsidiary acts as the legal
representative of a deceased member of the holding company or as a trustee and the holding company is
not beneficially interested under the trust.

Partnership Firm:
A partnership firm, being not a person in the eyes of law, cannot be a member of a company. However, a
firm can purchase shares of a company in the individual names of its partners as joint shareholder.

Foreigners:
Foreigners can become members of companies registered in India but permission of the reserve bank of
India has to be obtained for this purpose. The right of the foreigner as a member will be suspended if he
becomes an alien enemy.

Fictitious Person:
A person who takes the shares in the name of a fictitious person becomes liable as a member. Besides,
such a person can be punished for impersonation under section 68-A.

A person may become a member of the company in any following ways:

 By subscribing to the memorandum of association:

Every subscriber to the memorandum of association is deemed to have agreed to become its member and
on its registration must be put on the register of members.

Two conditions are necessary to make such a person a member:

(i) He will subscribe his name to the memorandum of association.

(ii) The company must be registered under the companies act. In their case neither allotment of shares

not registration of their names in the register of members is essential.

 By agreeing to take qualification shares:

Directors of the company on delivering to the registrar written undertaking to take their qualification
shares and to pay for them become members of the company, and they are in the same position as if they
were subscribers to the memorandum. They are deemed to have become members automatically on the
registration of the company.

 By application and allotment:

A person may become a member of a company by an application for shares subject to the formal
acceptance by the company. The ordinary law of contracts applies to the agreement to take shares in a
company. An application for share may be absolute or conditional. If it is absolute, a simple allotment and
notice thereof to the applicant will constitute the agreement. If it is conditional, the allotment must be on
the basis of the conditions specified. Where there is a conditional allotment of shares and an
unconditional allotment, there is no contract constituted.

 By transfer of shares:

The shares of a company are transferable but the mode of transfer is left to be decided by the articles of
the company. A person may purchase shares and apply to the company to register him as a member. On
transfer of shares duly affected the transferee becomes a member of the company.

 By transmission of shares:

On the death of a member his shares vest in his legal representatives. The legal representatives can sell
the shares without being registered, but subject to the provisions of the articles he is entitled to be put on
the register of members if he so chooses. The official assignee is likewise entitled to be a member in place
of a shareholder who is adjudicated insolvent. This process of acquiring membership is known as
transmission. It takes place on the death or insolvency of a member or if the member is a company on its
going into liquidation. In these cases no instrument of transfer need be delivered to the company.

 By holding out as a member:

A person is deemed to be a member of the company who allows his name to appear in the register of
members apart from any agreement to become a member, to be on the register of members or
otherwise hold himself out or allows him to be held out as a member. A person may not have applied
for the shares but if he assents to his name being on the register, he is to be considered as a member of
the company.

Register of members:
Every company under the act shall keep a register of its members. There is no form but the following
particulars must appear in the register.
(a) The name, address, and occupation of each member.
 (b) In the case of a company having a share capital, the shares held by each member with numbers and
amount paid or considered to be paid on them.

(c) The date on which each member’s name was entered in the register.

(d) The date on which any person ceased to be a member; and

(e) If the shares have been converted into stock, and notice of conversion given to the registrar, it will
show the amount of stock held by each member.

For default in complying with these provisions, the company and every officer of the company who is in
default shall be liable to a fine up to Rs. 50 for every day during which the default continues.

Rights of members
Statutory right:

There are the rights which are conferred on the member by the company act. These rights cannot be taken
away or modified by any provision in the memorandum or the article.

i. Right to receive notice of meetings, attend, to take part in the discussion and vote at the meetings.
ii. Right to transfer the shares [in case of public companies].
iii. Right to receive copies of the Annual Accounts of the company.
iv. Right to inspect the documents of the company such as register of members, annual returns, etc.
v. Right to participate in appointments of directors and auditors in the Annual General Meetings.
vi. Rights to apply to the Government for ordering an investigation into the affairs of the company.
vii. Right to apply to the Court for winding up of the company.
viii. Right to apply to the National Company Law Tribunal for relief in case of oppression and
mismanagement under Secs. 397 and 398.

Documentary right:

There are the right given to the member by the memorandum and article of association.

Legal right:
These are the right given to the member by the general law.

Proprietary right:

The right to participate ratably in dividend distribution when ordered in the discretion of the directors.

Remedial right:

The right to information and information and inspection of company record.

Liability of members:

The liability of the member of a company depends on the nature of the company.

Company with unlimited liability: Each member is liable in full for all the debts contracted by the
company during the period he was a member.

Company limited by shares: Each member is liable to pay the full nominal value of the share held by
him. If he has already paid a part of the amount on the shares his liability is limited to the unpaid amount
on the shares in respect of which he is a member.

Company limited my guaranty: Each member is liable to contribute the amount guarantee by him to b
paid in the event of winding up of the company.

 To make shares if he/she is allotted as per the Act.

 To pay call money or pay the due amount of shares.
 To abide by the decision of majority when they act ‘bonafide’.
 To contribute to the Asset of the company in case of winding up and when the shares are partly
paid up.

Termination of Membership:
A person will cease to be a member of the company when his name is removed from the register of
members. It may take place in any of the following ways:

1. When a person transfers his shares. In such a case the transferor ceases to be a member as soon as the
transferee is registered but not before.

2. When his shares are validly forfeited by the company.

3. When a person makes a valid surrender of his shares of the company.

4. When a company sells the shares in exercise of its right of lien over them.

5. When he dies.

6. When he is declared insolvent and the official assignee either disclaims or transfers the shares.

7. When he repudiates the contract on the ground of false or misleading statement in the prospectus of the
company.

8. When he is holding redeemable preference shares and such shares are redeemed.

9. When share-warrants are issued in exchange of fully paid-up shares and the articles do not recognize
holders of share-warrants as members.

10. When the share are sold in execution of a decree of the court. When the company is wound-up. But he
remains liable as a contributory.