Transfer of Shares in Private Limited Company

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Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2010 I want to know the procedure of Share Transfer in Private companies and amount of Stamp Duty, Related forms in respect of Transfer and procedure.

Ankur Garg

Ankur Garg (Expert)
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16 February 2010 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:â€”

(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.

Valuation for consideration for transfer of shares of a private company

Usually, Articles of a private company provides that the shares are to be sold under pre-emption clause at a fair price determined by directors or the company's auditors. It may also be provided that the fair price would be certified by the company's auditors.

If the pre-emption clause requires that the shares are required to be offered to other members at a price certified by the directors or auditors, the Courts are not in a position to enquire into the correctness of valuation, unless there is evidence that valuation was not correctly made. If the person who made the valuation has acted negligently and failed to take into account all the necessary factors for arriving at the value of shares, in such case the transferor may sue for damages to the person who made the valuation for difference between the value of the share, as computed by the valuer, and the real value of shares.
The Company Law Board/Tribunal ordinarily do not interfere with the valuation made by experts. Therefore, if valuation is challenged then there must be sufficient evidence in support to show that valuation is improper.

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Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2010 I want to know how to dealt with Transfer Deed in respect of Stamp Duty, Notary and regarding intimination to ROC

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2010 Thanx Sir

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2010 .

Rasesh

Rasesh (Expert)
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17 February 2010 The normal transfer deed is to be used. The deed will have a validity of only two months in case of a private limited company.

Notarisation is required only if there is a doubt on the signature validity.

The value of the shares (if not provided in the AOA) can be determined by the seller and buyer mutually.

Stamp duty: 25 paise for every Rs. 100 of the consideration value.

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