Provisions relating to Transfer of Shares of Listed and unlisted companies

Nature of Company

Whether transfer of shares allowed and if yes in what form?

Provisions

Listed Company (Equity listed)

Transfer of shares held in physical form is not allowed. Transfer of shares held in demat form is allowed.

Physical share certificates can be tendered in buybacks through tender offer, open offers and exit offers in case of voluntary or compulsory delisting.

1st proviso to Reg. 40(1).

SEBI circular dt: July 31, 2020

Unlisted Public company

Every holder of securities in unlisted public company who intends to transfer shares post-October 2, 2018 will have to ensure that the securities are in demat form.

Procedure for transfer of shares in demat form is done at depository level. It does not require permission from company.

Rule 9(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014

Private company

Transfer of physical shares is allowed in case of private companies.

Section 56(1) of Companies Act, 2013 and Companies (share Capital and Debenture) Rules, 2014 framed under Companies Act, 2013

Process for transfer of Shares of unlisted public co. –

Rule 9(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014

Process of transfer of shares from one Demat account to another in case of public company:

The following is the process of transfer of shares from one Demat account to another in brief.

Step 1 - The investor fills the DIS (Delivery Instruction Slip) and submits it to the current broker.

Step 2 - The broker forwards the DIS form or request to the depository

Step 3 - The Depository will transfer your existing shares to the Demat account

Step 4 - Once all the shares are transferred, the same will be reflected in the investor’s new Demat account.

When an investor opens a Demat account with a stockbroker, he is provided with a delivery instruction slip or DIS along with the welcome kit. Here are the fields to watch out for, while filling in the details in DIS:

1. Target Client ID: It is a 16-digit identification number that is allocated to the investor. It is the broker’s ID, also known as Beneficiary Owner ID (BO ID)

2. ISIN: International Securities Identification Number or ISIN as is 12 digits long. It assists in identifying securities like stocks, equities, notes bonds, funds, etc. It should be mentioned in the slip, along with details of the shares with the quantity.

3. DP Name: Here, the name of the stockbroker or Depository Participant must be mentioned.

4. Inter Depository: This blank is required to be filled up if the investor wants to transfer shares from one depository to another.

5. Off Market: This space is filled up for carrying out the transfer of shares within the same depository.

Once all the required information have been filled up and the investor has signed the DIS, the following are the final steps:

1. Submission of signed DIS to the current broker by the investor.

2. The investor should take the due acknowledgement receipt of the DIS from the broker.

3. After this, the broker will require some days to transfer the shares to the investor’s Demat account with the new broker.

Transfer of shares of a private company

A Company shall not register any Transfer unless a proper instrument of Transfer held in physical form in Form No. SH-4 duly stamped, dated and executed by or on behalf of Transferor and the Transferee. Stamp duty is payable as per Indian Stamp Act, 1899. Further post January 2020 stamp duty is payable online.

Procedure for transfer of shares:

1. Transferor will request the Company to Transfer his shares
2. The Company will sent Notice to all existing members that the above mentioned shareholder has shown his intention to transfer his shares
3. If no existing Member has shown interest then Company will intimate the Transferor that he can sell his shares to non-member.
4. The Transferor will submit SH-4 duly executed, dated and stamped to the Company. After submitting same, the Company will verify the contents of the SH-4. And if it finds everything is in place then it will place the same before the approving authority Board Resolution approving Transfer of shares and a resolution would be passed approving the transfer of shares.
5. On approving share transfer at board meeting register the transfer of shares and issue the endorsed share certificate to the Transferee within one month of receipt of Instrument of Transfer.
6. Once this resolution is passed register of members shall be updated with new names.