TRANSFER OF SHARES

According to the Companies Act, 2013, shares of a Public Limited Company are freely transferable
whereas a Private Limited Company is required to restrict the right to transfer its shares by its Articles of
Association through Section 2 (68) of the Companies Act, 2013. Transfer of shares is as equivalent as
transfer of ownership, hence it is important to regulate it through provisions, therefore the provisions
and regulations for transfer have been enacted in Section 56 to 59 of Companies Act, 2013 and the
Companies (Share Capital & Debentures) Rules 2014.

The shares or debentures or other interest of any member in a Company shall be movable property
transferable in the manner provided by the articles of the Company. [Section 44]

The legal provisions related to transfer of shares are:

 Section 56 of Companies Act, 2013.

 Rule 11 of Companies (Share Capital & Debentures) Rules 2014.

MANDATORY REQUIREMENTS

1. A proper duly stamped, dated and executed in Form No. SH-4 by or on behalf of the transferor
and the transferee and specifying the name, address and occupation, if any, of the transferee
has been delivered to the company by the transferor or the transferee within a period of sixty
days from the date of execution, along with the certificate relating to the securities, or if no such
certificate is in existence, along with the letter of allotment of securities.

[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:

 State Bank of India; or

 Any scheduled bank; or

 Any other banking company; or

 Financial Institution; or

 Central Government; or

 State Government; or
  Any corporation held by the Central or State Government; or

 Trustees who have filed the declarations.

 For transferring debentures, a standard format can be used as the instrument of

transfer.

2. If the instrument of transfer has been lost or the instrument of transfer has not been delivered
within 60 days of execution, the company may register the transfer on such terms as to
indemnity as the Board may think fit. [Proviso to Section 56(1)]

3. Where an application is made by the transferor alone and relates to partly paid shares, the
transfer shall not be registered, unless the company gives the notice of the application, in Form
SH-5 to the transferee and the transferee gives no objection to the transfer within two weeks
from the receipt of notice. [Section 56(3) read with rule 11(3) of the Companies (Share Capital
and Debentures) Rules, 2014]

FOLLOWING PROCEDURE IS TO BE FOLLOWED

1. Execution and Delivery of Instrument of Transfer [Section 56(1) and Rule 11(1) of the
Companies (Share Capital and Debentures) Rules, 2014]

 Both transferor and transferee or anyone on their behalf shall execute instrument of
transfer of securities in Form SH-4.

 Stamps of appropriate value must be affixed on the instrument and cancelled properly.

 Transferor or Transferee shall deliver the instrument of transfer to the Company within
60 days from the date of execution along with Share Certificate or Letter of Allotment,
as the case may be.

2. Convene a Meeting of Board of Directors [As per section 56, 173 & SS-1]

a. Issue Notice of Board Meeting to all the Directors of Company at their addresses
registered with the Company, at least 7 days before the date of Board Meeting. A
shorter notice can be issued in case of urgent business.

b. Notice shall be sent to the transferee as well for obtaining his consent in case of transfer
of partly paid securities.

c. Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.

d. Hold a meeting of Board of Directors of the Company and pass the Board Resolution to
approve transfer of securities.

e. Board shall obtain necessary indemnity from the transferor in case of mismatch of the
signatures.
 f. Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board
Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for
their comments.

3. Make Necessary Entries in the Registers [Section 88(1) and Rule 5 of the Companies
(Management and Administration) Rules, 2014]
Company shall make necessary entries in the Register of Members i.e. Form MGT-1 or in the
Register of Debenture holders or other securities holder i.e. Form MGT-2, within 7 days of the
Board Meeting in which transfer was approved.

4. Deliver the Certificate of Securities [Section 56(4)]

Company shall endorse the details of transfer on the back of Certificate of Securities i.e. Form
SH-1 (in case of Shares only) and deliver the same to the transferee within a period of 1 month
from the date of receipt of the instrument of transfer by the company.

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.