Transfer of Shares in Pvt. Ltd.

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.

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.

Find attached herewith a very useful file for transfer of share. Hope this file would be off some help.

I want to know how much value of stamp duty should be affixed  on it whether it should be notarised and require to submit with any authority. 

please reply me it's urgent

Dear Hitesh,

The share transfer deed should be ‘duly stamped’. Presently, the stamp duty payable is @ 25 Ps per Rs 100 of consideration (and not on basis of face value of shares).

There is no stamp duty on transfer of shares or debentures in a depository scheme.

Transfer Deed is compulsory

Section 108 provides that a company shall not register a transfer of shares of, the company, unless a proper transfer deed in Form 7B as given in the Companies (Central Government's) General Rules and Forms, 1956 duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, alongwith the certificate relating to the shares, or if no such certificate is in existence, alongwith the letter of allotment of the shares.

Value of share transfer stamps to be affixed on the transfer deed

Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.

Submission of instrument for transfer to the Company

Transfer Deed duly executed for the registration of a transfer of the shares or other interest of a member in a company may be submitted either by the transferor or by the transferee together with the relevant share certificates.

If director transfer their share by appointing new director what will be the effect in the books of accounts or what enries will be made?
 

Only the procedure if old directors want to transfer their shares to new directors..

Thanks & Regards

Dear Ankur Sir,

Whether share can be transfered for cash?? Any case law available on the said query? I require to clear my doubt very urgently on the same

Yes Mohammed Ji….usually shares are transferred for cash…

I think for this no case law is required. However you may make a separate post and confirm from members…to remove your doubts.

Regards

Ankurji, Thanks a lot for your kind reply and I have even posted in forum but dint received any reply yet..

/forum/transfer-of-share-193011.asp

I am thinking how can it be possible to transfer share in cash when the consideration are generally in lakhs of rupees.

Rule 8(3) of Unlisted Public Companies (Preferential Allotment) Rules 2003 as amended on 14.12.2011 reads as under:

"All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels, but not by cash."

Technically there is difference between 'subscripttion' and 'purchase' and there seems to be no restriction on purchase of securities in cash in public company, though intention of the government is very clear to avoid cash transactions.  Further, in case of private company there is no such restriction.

I am director in Pvt. Ltd. Co. I have made an aggreement to purchase share from second director and issued a cheque to him. He verbly refused to sign the share transfer deed and presented the cheque to the bank which dishounred. Kindly suggest me what should be done.

What document are to be prepared for  transfer of shares of a Private Ltd Co.