Transfer of shares

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 October 2012 Is there a way, wherein we Transfer some shares to another person with a right to receive back those shares after 2 years?

If yes,
what is the legal terminology for this type of transfer and What is the procedure to be followed?

Ajay Mishra

Ajay Mishra (Expert)
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14 October 2012 Hi

Procedure for transfer of shares of private company
Generally articles contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—
(i) Transferor should give a notice in writing for his intention to transfer his share to the company.
(ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.
(iii) Such price is generally determined by the directors or the auditors of the company.
(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
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.
It is to be noted that any transfer of shares to an outsider without complying with the procedure as specified in the articles for effecting transfer of shares will not be operative against the company. Even in the case where the procedure prescribed by the articles was not followed and such failure was not due to any fault on the part of the selling shareholder, the transfer to an outsider was held not to be effective.
Transfer of shares without consent of holder of shares and without prior sanction of board of directors as required under articles of association of a private company concerned could not be held to be valid. [John Tinson Co. (P) Ltd. v Mrs. Surjeet Malhan (1997) 88 Comp Cas 750 (SC)].

Querist : Anonymous

Querist : Anonymous (Querist)

15 October 2012 Ajayji,

I am conversant with the Transfer procedure.

I wanted to know if we can transfer our shares to another person (assuming we have followed the Articles and the Board is OK with the transfer) with the condition that the shares will revert back to us after 2 years?

If yes,

What is the legal terminology for this type of transfer and what is the additional requirement for such transfer?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Got it! You’re asking about a **transfer of shares with a condition that they revert back after a certain period (2 years in this case)**.

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### Can shares be transferred with a right to get them back after 2 years?

**Yes, but the direct “transfer and automatic return” is not a straightforward transfer of shares**—because once shares are transferred, the transferee becomes the legal owner.

To achieve this, you usually use one of these legal structures:

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### 1. **Transfer by way of “Re-transfer Agreement” or “Buy-Back Agreement”**

* You transfer shares now, **but enter into a separate legally binding agreement** (like a **put option** or **call option**) with the transferee.
* This agreement gives you the **right to get the shares back** after 2 years, at a predetermined price or terms.
* The shares are legally transferred to the other person, but your right to get them back is protected contractually.

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### 2. **“Trust arrangement”**

* Transfer shares to a trustee (could be the person you want to hold shares temporarily) **on trust**, with instructions to transfer back after 2 years.
* However, trust-based transfers require careful legal drafting and may have regulatory implications.

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### 3. **“Pledge of shares”**

* Instead of transferring, you can **pledge the shares** to the other person for 2 years.
* Pledge means the ownership remains with you, but the other person has a security interest.
* This may be a better option if the idea is only to give control or security without actual transfer.

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### 4. **“Conditional Transfer” or “Transfer with Reversionary Clause”**

* Indian company law **does not explicitly recognize conditional transfers of shares** where the transfer is automatically revoked after a period.
* You can draft a **conditional sale agreement** but the share transfer itself is absolute.
* Hence, the reversion has to be enforced through a separate agreement, not by the transfer deed itself.

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### Legal terminology often used:

* **Option to buy back shares** (buy-back agreement / call option)
* **Put option to re-acquire shares**
* **Conditional transfer of shares** (but not recognized as such by law)
* **Transfer subject to buy-back/right of first refusal**

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### Procedure to follow:

* Follow the usual transfer procedure as per Articles of Association and Companies Act.
* Execute a separate **agreement for re-transfer or buy-back** specifying terms and timeline.
* Board approval may be needed for transfer and for enforcing buy-back.
* Stamp duty and registration of transfer deed as usual.

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### Summary:

* **No direct “transfer with automatic reversion” recognized by company law.**
* Use **separate contractual agreement** (put/call option or buy-back) to protect your right to get shares back.
* Proper legal drafting and compliance with company’s articles and laws is essential.

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If you want, I can help draft a sample **buy-back/option agreement template** or guide you on how to document this. Would you like that?

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