Share Transfer Procedure under the Companies Act, 2013

Share transfer is a process by which shares of a company are transferred from one person (transferor) to another person (transferee). This allows shareholders to exit or change ownership, and that the company continue to hold accurate information in the Register of Members. It is governed by the following laws and regulations: Companies Act, 2013, Companies (Share Capital and Debentures) Rules, 2014, Articles of Association of the company, Stamp Duty Laws.

As per the provision under section 56 of the Companies Act, the company shall not register the transfer unless the instrument of transfer is duly stamped and executed by or on behalf of both the transferor and transferee.

Meaning of Share Transfer

This is the voluntary transfer of ownership of shares from one shareholder to another. The transfer is carried out through a transfer deed.

While the transmission of shares takes place automatically, the transfer of shares depends on an agreement between the two parties.

Provisions Governing Share Transfer

1. Companies Act, 2013

Section 56 – Transfer and Transmission of Securities
Section 58 – Refusal of Registration and Appeal against Refusal
Section 59 – Rectification of Register of Members

2. Rules

Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014

3. Other Applicable Laws

Indian Stamp Act, 1899 (or applicable State Stamp Law)
Depositories Act, 1996 (for dematerialised securities)

Conditions for Share Transfer

Prior to making any transfer, you must ensure that:

• The transfer is in compliance with the Articles of Association.

Proper transfer deed (Form SH-4) is executed, where applicable.
Applicable stamp duty has been paid.
Share certificate is attached (for physical share transfers where relevant).
Board approval is obtained, where required.
Transfer documents are submitted within the prescribed time.

Process to be followed in the transfer of shares

Step 1: Review the Articles of the Association (AOA)

The AOA normally contains a few limitations on transfer of share.

Step 2: Execution of Form SH-4

Form SH-4 (Form for transfer of securities) The transferor and transferee have to sign the Form SH-4. Contents of the form should be:

Name of transferor
Name of transferee
Number of shares
Distinctive numbers (where applicable)
Consideration amount
Date of execution
Signatures of both parties
Witness details

Step 3: Payment of Stamp Duty

It is necessary that the transfer deed is properly stamped as per the applicable stamp duty laws.

Step 4: Submit Documents to the Company

The following should be submitted:

Form SH-4
Original share certificate (where applicable)
PAN and identity documents (if required)
Any additional documents required by the company

Section 56 requires delivery of the instrument of transfer to the company within 60 days from the date of execution.

Step 5: Board Meeting

The Board of Directors reviews the transfer and resolves to approve or disapprove the same under the Act and the Articles of Association.

Step 6: Entry in Register of Members

Upon approval:

The company updates the Register of Members.
The transferor’s name is removed (to the extent of transferred shares).
The transferee’s name is entered as the shareholder.

Step 7: Issue of Share Certificate

Where physical certificates are applicable, the company must deliver the certificate in the name of the transferee within one month from receipt of the instrument of transfer.

Documents Required

Form SH-4
Original Share Certificate
Share Transfer Agreement (if executed)
Identity and PAN details
Board Resolution
Proof of payment of stamp duty

Time Limits as per the Companies Act, 2013

Particular	Time Limit
Submission of transfer deed to the company	Within 60 days of execution
Postal delivery of share certificate after registration of transfer	Within 1 month of the date of the receipt of the instrument of transfer

These timelines are prescribed as per Section 56 of the Companies Act, 2013.

Stamp Duty on Share Transfer

Stamp duty is payable on the transfer of shares in accordance with the applicable stamp duty provisions. The transfer deed should be duly stamped before registration by the company.

Refusal of Share Transfer

A company may refuse registration if:

The Articles of Association prohibit or restrict the transfer.
Required documents are incomplete.
Stamp duty has not been paid.
Transfer deed is invalid or improperly executed.

An individual aggrieved by such a denial may pursue the reliefs under Section 58 of the Companies Act, 2013.

Penalty for Non-Compliance

Non-compliance with transfer and transmission of securities laws may attract a penalty of Section 56(6) which reads as follows:

Company: Fine of ₹25,000 to ₹5,00,000
Officer in Default: Fine of ₹10,000 to ₹1,00,000

Share Transfer vs Share Transmission

Basis	Share Transfer	Share Transmission
Nature	Voluntary	By operation of law
Governing Provision	Section 56(1)	Section 56(2)
Consideration	Required	Not required
Instrument	Form SH-4	No transfer deed
Stamp Duty	Applicable	Generally not applicable
Trigger	Agreement between parties	Death, insolvency, succession, etc.

Common errors to Avoid

Ignoring restrictions in the AOA.
Executing an incomplete Form SH-4.
Non-payment of stamp duty.
Delayed submission beyond the prescribed period.
Not obtaining Board approval where required.
Failure to update the Register of Members.

Why to choose My Legal Business LLP?

At My Legal Business LLP, we provide end-to-end assistance for share transfers, including:

Drafting Share Transfer Deeds (Form SH-4)
Verification of Articles of Association
Board Meeting documentation and resolutions
Register of Members and statutory register updates
Share Certificate endorsement and issuance
Advisory on stamp duty and legal compliance
Assistance in resolving disputes relating to share transfers

Our professionals ensure that every transfer complies with the Companies Act, 2013, applicable Rules, and MCA requirements.

Conclusion

As per the provisions of the Companies Act 2013, procedure of share transfer is formulated with an intention to bring transparency and good-faith on the process of share transfer. The transfer shall be subject to the provisions of the Articles of Association of the company, the Rules and the laws including stamp duty rules.

Also, timely submission of form SH-4 (application for transfer of shares), payment of stamp duty, obtaining board resolution (if applicable) and registration of transfer in Register of Members is important

Frequently Asked Questions (FAQs)

1. Which section governs share transfer?

Transfer of shares is governed under Section 56 of the Companies Act, 2013 which provides the process for transfer and transmission of securities.

2. Which rule prescribes the transfer form?
Filing of form SH-4 is required on transfer of securities according to Rule 11 of Companies (Share Capital and Debentures) Rules, 2014.

3. Which form is used for share transfer?
Form SH-4 (Securities Transfer Form) is used for transferring physical shares in accordance with legal provisions.

4.When is the transfer deed to be submitted?

The signed transfer deed must be delivered to the company within 60 days of execution.

5. Is Board approval required?
Yes, the Board of Directors generally approves the share transfer before updating the Register of Members, subject to the Articles of Association.

6. Is stamp duty mandatory?
Yes, the transfer deed should be stamped as per the law of stamp duty before registration.

7. Can a private company restrict share transfers?
Yes, private company restrict share transfer in its Articles of Association as per the Companies Act, 2013.

8. What is the distinction between transfer and transmission?
Transfer is voluntary share transfer between parties while transmission is automatic due to operation of law like death or bankruptcy of the member.

9. Can a company refuse to register a transfer?
Yes, a company may have the power to decline its registration on reasonable grounds and the aggrieved party may file an appeal under Section 58 of the Companies Act, 2013.

10.Can shares be transferred without a Share Transfer Deed?

No, In case of physical shares, a well-executed Form SH-4 is necessary, unless it is a case of transmission or exemption from transfer under the Companies Act, 2013.