share transfer in a private limited company

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Querist : Anonymous

Querist : Anonymous (Querist)

13 August 2010 In a private limited company restricted by shares, if one shareholder wants to transfer his shares to another shareholder, can they do so without informing the company?

Ankur Garg

Ankur Garg (Expert)
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13 August 2010 SHARES TRANSFER IN A PRIVATE COMPANY

Restriction in Private company on the right to transfer its shares [Section 3(1)(iii)]
Section 3(1)(iii)(a) of the Companies Act, 1956 provides that the Articles of a private company shall restrict the right to transfer the company's shares. Normally 100% shareholding of a private company may be owned by a family or other private group.

Cases where Restriction on transfer not applicable
Restriction upon transfer of shares in private company not applicable in the following cases:—
(i) on the right of a member to transfer his/her shares to his/her representative(s).
(ii) in the event of death of a shareholder, legal representatives may require the registration of share in his/her name.

Procedure for transfer of shares of private company
Transfer of shares in a private company is governed by AOA. Some steps followed by a private company to give effect to the transfer of shares are as follows:—

(i) Transferor should give a notice in writing to the company for his intention to transfer his share.
(ii) The company in turn notify to other members as regards the availability of shares and the price at which such share would be available to them along with the time limit within which they should communicate their option to purchase shares on transfer.
(iii) Such price is generally determined by the directors or the auditors of the company.

If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.

Valuation of share for the purpose of transfer of shares of a private company
Normally Articles of a private company contain provisions in this regard and provides that the shares are to be sold at a fair price determined by directors or the company's auditors.

Ankur Garg

Ankur Garg (Expert)
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13 August 2010 For more details kindly check my article available at the link mentioned below:

https://www.caclubindia.com/articles/transfer-of-shares-procedural-analysis-4692.asp

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sivadas chettoor

sivadas chettoor (Expert)
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18 September 2010 Without the approval of the Board it is not possible to transfer shares since in the case of private ltd co's the right to transfer share is by law restricted.