Transfer of shares in private company

Pvt ltd 3359 views 5 replies

Preeti Jain

Company Secretary

139 Points Joined August 2010

Dear All,

Whether in a private company, a member can transfer his shares to another member without sanction of Board of Directors if provisions of AOA are as follows:

a. Any member desiring to sell any of his shares must notify the Board of Directors of the number of shares, the fair value and the name of the proposed transferee and the Board must offer to the other sahreholders the shares offered at the fair value, and if the offer is accepted, the shares shall be transferred to the acceptors and if the shares or any of them are not so accepted within one month from the date of notice to the Board, the members proposing transfer shall be at liberty, subject to point (b) and (c) hereof, to sell and transfer the shares to any person at the same or at a higher price.

b. No transfer of shares shall be made or registered without the previous sanction of the Directors, except when the transfer is made by any member of the Company to another member or to a member's spouse or child or children or his/her heirs, and the Directors may decline to give sanction without assigning any reason, subject to Section 111 of the Act.

c. The Directors may refuse to register any transfer of shares (1) where the company has lien on the shares or (2) where the share is not a fullly paid up share, subject to Section 111 of the Act.

Thanks in advance

Replies (5)

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

As per Section 108 transfer of shares has to be registered by the company on production of instrument of transfer. Even if the Article gives right to transfer shares to another member, transfer has to be registered by the company after approval of the Board. Name of the buyer has to be entered in the register of members after due verification of the instrument, payment of stamp duty etc. Hence approval of the Board is necessary.

Sumit Jaiswal

Company Secretary

818 Points Joined February 2011

Agree with the above reply.

In your case, a shareholder cannot transfer his shares to a outside shareholder (who is not an existing shareholder) without the prior approval of the BOD. I believe the provisions of the Articles which you have shared above is self explanatory. This provisions of the Articles has to be followed.

Preeti Jain

Company Secretary

139 Points Joined August 2010

Thanks Dear Professional Colleague for your valuable reply....

Please clarify me on this point also that whether Board can refuse to register transfer between existing members even if all formalities of Sec. 108 are complied with.

Thanks in anticipation....

Ankur Garg

Company Secretary and Compliance Officer

114783 Points Joined January 2009

Transfer of shares without the approval of board is not possible.

Section 3(1)(iii)(a) of the Companies Act, 1956 provides that the Articles of a private company shall restrict the right to transfer the company's shares.

Note: Restriction should not be in the form of prohibition and Restriction can only be by the Articles of Association.

So after going through your AOA provision, directors should approve the proposed share transfer as one member is transferring his shares to another existing member. In case of unnecessary refusal by BOD, you have your rights under section 111.