Transfer as a gift of Sec8 company shares

Great question, Abhay!

Here's a detailed explanation tailored to your query regarding transfer of shares in a Section 8 company:

🔍 Can shares of a Section 8 Company be transferred as a gift?

A Section 8 company under the Companies Act, 2013 is a non-profit company formed for charitable purposes — such as promotion of commerce, art, science, education, social welfare, etc.

Now to your specific question:

✅ Key Points:

1. Section 8 Companies Are Usually Limited by Guarantee, Not Shares

   • Most Section 8 companies are limited by guarantee and do not have share capital.

   • So typically, the question of transferring shares (as a gift or otherwise) does not arise.

2. But If a Section 8 Company Is Limited by Shares...

   • Though rare, a Section 8 company can be incorporated with share capital.

   • In such cases, transfer of shares is allowed, but subject to stricter controls and regulations under the Companies Act, 2013.

🎁 Is Gift Transfer of Shares Permissible?

Even in a Section 8 company with share capital, the transfer of shares as a gift is not freely allowed like in a regular private company.

Here's why:

• As per Section 8(1)(b): The company must apply its profits or income solely for promoting its objects and cannot distribute dividends.

• Rule 21 of the Companies (Incorporation) Rules, 2014 says:

  "A person shall not become a member of a Section 8 company without the prior approval of the Board."

Therefore:

Yes, a member can transfer shares to another person (even as a gift), but it must be:

• With the Board’s approval, and

• Compliant with the Articles of Association (AoA) of the company, and

• In line with the charitable objectives of the company.

📜 Procedure for Gift Transfer (if allowed):

If the company has share capital and its AoA allows share transfer:

1. Check Articles of Association for any restrictions or procedures.

2. Obtain Board Approval before initiating the transfer.

3. Execute a Gift Deed (stamp duty applicable as per state laws).

4. Submit share transfer form (Form SH-4) duly signed.

5. Update Register of Members.

6. File necessary ROC forms if applicable (though not always required for private companies).

⚠️ Important:

• Since Section 8 companies are for non-profit purposes, transfers with intent to profit or gain (even indirectly) may attract regulatory scrutiny.

• Gift transfers may also raise concerns under income tax laws (clubbing provisions, anti-abuse rules).

🧾 Summary: