Can a share holder sell his shares in pl company

It is also important to see that these restrictions are not construed as a ban or a prohibition on the transfer of shares. The Courts have consistently held that the restriction upon transfer means any restriction that will give some control to the company over transferability of shares[15]. It does not mean a prohibition on the transfer of shares. It was held in Chiranji Lal Jasrasaria v. Mahabir Dhelia[16]that a restriction which amounts to a prohibition on transfer of shares or which precludes a shareholder altogether from transferring is invalid. Moreover a prohibition on the transfer of shares will amount to violation of Section 82 of the Companies Act, 1956 and Section 6 of the Transfer of Property Act, 1872. Therefore if a clause in the articles provides that shares are not transferable but heritable will be valid. This is because: Shares are property and under Section 6 of the Transfer of Property Act, 1872 prohibiting transfer of property is not allowed. Transferability is the general nature of property and even when there is a restriction on transfer, when the person dies the restriction will not apply.

Need for Restrictions on the Transfer of Shares

In the United States of America Private Companies are referred to as ‘Close Corporations’.[17] This term implies that private companies are closely knit family or friendly affairs. The members of a private company are connected by bonds of kinship, friendship or similar close ties and the intrusion of a stranger as a shareholder would be felt to be undesirable unless his admission is accepted by the existing members. Some private companies are in fact so constructed so as to amount to in economic terms as nothing more than incorporated partnerships with extremely close ties between the members. Thus these restrictions are needed in order to preserve the soul of the private company ie. the partnership principle. These restrictions on transfer of shares prevent anybody or everybody from acquiring shares of the company by transfer and help to keep the close ties amongst the members intact.

Thus the main reasons for which Restrictions on transfer of shares are needed in private companies are:[18]

• To keep the control of the company in the hands of a small group of persons bound together by ties of friendship, kinship etc.
• To ensure that shares are not transferred to persons who are unacceptable to the existing members.