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Share transfer of a private company

Sunil Singh (Proprietor) (199 Points)

20 September 2013

what is the procedure of share transfer from subscriber to the MOA to another person. is change in share in shareholding required to be filed at MCA

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Ajay Mishra (Company Secretary) (74332 Points)
Replied 22 September 2013

A subscriber to memorandum cannot, after issue of certificate of registration, repudiate his subscripttion on ground that he was induced to sign by misrepresentation of an agent of company. [Metal Constituents Ltd., In re (1902) 1 Ch. 707].

If subscribers to memorandum have any objection to memorandum and articles of association, the time to object is before putting their signatures to it. [East Bengal Sugar Mills Ltd., In re (1941) 11 Comp Cas 169 (Cal)].

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Ajay Mishra (Company Secretary) (74332 Points)
Replied 22 September 2013

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.

(V) the transferor will submit the following documents with company:

(a) Original Share certificate

(b) Transfer deed (Form-7B) properly executed with stamp duty of proper amount.

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)].