How Can You Transfer Shares of a Private Limited Company

One of the essential characteristics of a company is the transferability of shares. Shares and debentures are included in the transferable property. In particular, the shares of each member of a public corporation may be transferred in the manner provided by the incorporation articles.

Any agreement or contract between two or more people has the potential to result in the transfer of securities. The Companies Act's provisions cover the transfer and transmission of securities. Loss of title to securities owing to death, succession, inheritance, bankruptcy, etc. is referred to as transmission of securities. It is not transferred, to put it briefly.

Meaning of Share Transfer

The term "transfer of shares" describes the voluntary transfer of a business member's rights and potentially their responsibilities (as represented in a company's share). The rights and liabilities of transferring shares occur from a shareholder who decides to resign from the company to a candidate for membership.

Therefore, shares in a business are transferable like any other movable property in the absence of any specified limitations within the company's articles.

Transfer Restrictions for Share

A closed corporation of members, which is comparable to a partnership corporation, makes up a private limited company. Consequently, the Articles of Association may place restrictions on the transfer of shares to private limited businesses (AOA). Thus, before beginning the share transfer process, the Articles of Association (AOA) of an organisation must be carefully reviewed.

There are typically two types of limitations on shareholders' ability to transfer shares of private limited companies. Which are:

Rights of preemption: A shareholder who wishes to sell some of his shares must first make the shares available to the corporation's current shareholders at a price determined by the auditors and directors. The Articles of Association specify a method or formula for calculating the share's value (AOA). The shares may then be freely transferred to any third party if the current shareholders are not interested in purchasing them.

Refusal by the directors: The Directors have the authority to decline to register the transfer of shares in certain situations that are specified in the Articles of Association (AOA).

Therefore, when it comes to the transfer of shares to a private limited company, the only limitation that is expressly expressed in the Articles of Association (AOA) is marked as being enforceable. Private shareholder agreements are not legally binding on either the shareholders or the firm. In addition, the Articles of Association are the only restrictions on share transfers (AOA). Share transferability cannot be entirely prohibited or banned by the ability to transfer shares to private limited enterprises.

The procedure of share transfer of private limited companies

The following measures must be taken into account before beginning the share transfer process:

Step 1: Inspecting the Articles of Association (AOA)

It is necessary to evaluate and review the private limited company's articles of association (AOA). This aids in removing any existing limitations.

Step 2: Providing notice to directors

The directors must be informed by the company's shareholders if they wish to transfer their shares to a private limited company.

Step 3: Defining the price

The price at which the Company's shares will be first made available to the Company's existing shareholders shall be determined in accordance with the Articles of Association (AOA). The company's auditors and directors often decide on this price.

Step 4: Declaring the shareholders about share availability

The company is required to inform other shareholders of the availability of shares, their price, and the deadline for purchases. The shares will be distributed to the current shareholders if they are interested in buying them. The same is transferred outside if a shareholder's interest does not exist.

The procedure of transferring shares of a private limited company

The following actions must be taken in order to determine the share transfer's success rate:

• Getting a share transfer deed in the required format is the first step.
• The share transfer deed must be started second, and both the transferee and the transferor must sign it.
• The share transfer deed must be stamped in accordance with the laws that are in effect in that state, region, or nation as the third stage.
• The fourth requirement is to have a witness' signature on a share transfer document that also includes the witness' name, address, and signature.
• The transfer document and allotment letter are delivered to the same organisation by combining them in the fifth stage.
• The processing of the company's documentation is the sixth phase. A new share certificate in the transferee's name is issued if approved.

Benefits of share transfer of private limited company

Transferring shares to private limited corporations have a number of advantages. Capital increases, compensation entitlements, limited liability, restricted shares, demand over assets and earnings, control, bonus shares, liquidity, and other benefits are all associated with equity share investments. The advantages are primarily:

• Reducing the tax liability.
• Possessing an expanding business
• Alignment with the prospective buyer of private equity.
• Transfer of Shares Checklist
• An announcement of the share transfer to the organisation.
• Ensure that both the transferor and the transferee properly complete the share transfer agreement form.
• It is necessary to mark and record the form accurately.
• It is crucial to notify customers about the time frame for the security of any equipment being transferred to the organisation.
• Stamps for share transfers are attached to the transfer agreement.
• Distribute the certificate or document along with the letter of distribution.
• Authority transfer.
• Board decision.

Refusal for registration of share transfer of private limited company

There may be a problem if shares are transferred to a private limited company and the private limited company declines to record the transfer. The organisation must notify the transferee of the denial within 30 days of receiving notification of the transfer, and the transferee must include a persuasive justification for the refusal. Within 30 days of receiving the notice, the transferee has the opportunity to appeal the decision to the Tribunal. It is also possible in the situation where the organisation sends the notice. Additionally, this must be started within 60 days of the transfer date.

Difference between issuing shares and transferring shares of private limited companies

The number of shares to issue must be chosen when a private limited company is created. According to the agreed-upon terms and conditions, the shares are typically distributed to the shareholders. Additionally, stockholders may exchange shares at any moment. It is important to remember that a share transfer does not affect how many shares are currently in circulation.

Persons involved in share transfer of private limited companies

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

Time limits

A Company having a share capital:

Without a suitable document of transfer within 60 days after the date of execution, the Company shall not record the transfer of any Company stocks or member interest in the Company other than beneficial owners.

Application by transferor alone:

The transfer cannot be registered unless the transferor receives notice of the application from the corporation and the transferee responds with a letter of no objection within two weeks of receiving the notice.

When applicable and within the specified deadlines, the Company shall furnish certificates for all securities issued, transferred, or transmitted by any of the following:
In case of subscribers to memorandum: within two months of the company's establishment date.
If any of its shares are allocated within two months of the date of allotment.
Receipt by the organisation of the instrument of transfer or intimation of transmission: within one month from the date of receipt.
Allotment of debenture: within six months from the date of allocation.

Conclusion

The share transfer procedure in a private limited business is intricate. For additional information on the legality of the process, shareholders who wish to transfer ownership might speak with a financial consulting firm. Additionally, these businesses can help with the creation of share transfer deeds and the implementation of the transfer process. By using their services, stockholders can save time and effort that would otherwise be wasted. While the consultancy takes care of the essential share transfer procedures, they can focus on other projects.

Visit the Online Legal India website for more details on how to transfer shares of private limited corporations.