Transfer of Shares of a Private Limited Company
Transfer ownership of your shares in a private limited company smoothly with our expert assistance. We handle all documentation, ensure compliance with the Companies Act 2013, and complete the process in just 7-10 working days.
Timeline for Share Transfer
Execution & Stamping
The Transferor and Transferee execute the Share Transfer Deed (Form SH-4). Stamp duty at 0.015% of the consideration is calculated and paid.
Submission to the Company
The duly stamped Form SH-4, along with the original share certificate, is physically delivered to the Company (must be within 60 days of execution).
Board Approval
The Company convenes a Board Meeting to review the instrument. A resolution is passed approving the transfer and authorising the endorsement.
Endorsement & Register
The Company endorses the transferee's name on the share certificate and updates the Register of Members (MGT-1), legally completing the transfer.
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Who Can Transfer Shares in a Private Limited Company?
Share transfer in private companies requires meeting specific eligibility criteria under the Companies Act and the company’s Articles of Association. Both the transferor and transferee must satisfy these requirements for a valid, legally enforceable transfer.
Registered Shareholder
Any individual or entity whose name appears in the Register of Members as the legal holder of shares can initiate a transfer by executing Form SH-4 with proper stamp duty.
Legal Representative
Under Section 56(5), a legal heir or executor may transfer shares of a deceased shareholder without being registered, upon submission of the succession documents.
Power of Attorney Holder
A validly appointed POA holder can sign Form SH-4 on behalf of the transferor or the transferee, provided the POA registration details are mentioned on the transfer deed.
NRI/Foreign Investor
Non-Resident Indians and foreign entities can participate in share transfers, subject to the FEMA (Non-Debt Instruments) Rules, 2019, sectoral caps, and FC-TRS reporting.
Body Corporate
Companies, LLPs, or other corporate bodies can transfer shares through authorised signatories as per a board resolution, in compliance with transfer restrictions in the AOA.
Fully Paid Share Requirement
Shares should be fully paid. Partly-paid shares require additional compliance under Section 56(3), including Form SH-5 notice and the transferee's written consent.
FEMA Compliance for Non-Residents
For transfers involving non-residents, FEMA regulations must be followed, including valuation norms by CA/Merchant Banker and FC-TRS reporting within 60 days.
Dematerialisation Compliance
For non-small private companies, shares must be dematerialised under Rule 9B (deadline passed 30.06.2025). Non-compliant companies face transfer restrictions and penalties.
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Transfer of Shares of a Company
Watch our detailed video explaining the complete share transfer process in a private limited company. Learn about Form SH-4 execution, stamp duty requirements, board approval procedures, and compliance timelines under the Companies Act, 2013.
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Essential Pre-Transfer Due Diligence for Share Transfer
Proper preparation ensures a smooth share transfer process. Before initiating any transfer, verify these prerequisites to avoid delays or transfer rejection.
| S.No | Requirement | Verification Action |
|---|---|---|
| 1 | Statutory Registers Updated | Confirm the Register of Members (Section 88) reflects the current shareholding, with all previous transfers recorded |
| 2 | Share Certificates Valid | Verify certificate numbers and distinctive numbers match company records; check franking for stamp duty payment |
| 3 | AOA Restrictions Reviewed | List all transfer restrictions, including pre-emption rights, board approval requirements, and lock-in periods |
| 4 | Company Compliance Current | Ensure all annual returns (MGT-7) and financial statements are filed; non-compliant companies face transfer restrictions |
| 5 | Shares Free from Encumbrance | Obtain a declaration confirming shares are not pledged, charged, or subject to any lien or third-party claim |
| 6 | Minimum Members Maintained | Verify post-transfer shareholding maintains the minimum two-shareholder requirement for private companies |
| 7 | Dematerialisation Status | Check Rule 9B compliance for non-small private companies; non-compliant companies face operational restrictions. |
Share Transfer Deed (Form SH-4) vs Share Transfer Agreement
Section Introduction: Form SH-4 is the mandatory statutory instrument for share transfer registration under Section 56, read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014. A Share Transfer Agreement, while not legally required for registration, is strongly recommended for transactions above ₹5 lakhs to document commercial terms, warranties, representations, and indemnities that protect both parties.
| No | Aspect | Form SH-4 (Transfer Deed) | Share Transfer Agreement |
|---|---|---|---|
| 1 | Legal Status | Mandatory for registration | Optional but recommended |
| 2 | Stamp Duty | 0.015% (Central, uniform since 01.07.2020) | State-specific (₹50 to ₹500 typically) |
| 3 | Contents | Basic transfer particulars only | Commercial terms, warranties, indemnities |
| 4 | Submission | Within 60 days of the company | Retained by parties |
| 5 | Witness Required | Yes, mandatory | Yes, advisable |
| 6 | When Essential | ALL physical share transfers | Transactions >₹5 lakhs, PE/VC exits, FEMA transfers |
Step-by-Step Procedure for Share Transfer in a Private Limited Company
The share transfer procedure is governed by Section 56 of the Companies Act, 2013, read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014.
Step 1: Notice of Intention and Pre-Emption Compliance
The Transferor serves written notice on the company's board of directors expressing the intent to sell shares. This triggers pre-emption rights under the AOA. The company must then offer these shares to existing shareholders, typically allowing 15-30 days for response. Only when all existing members decline or fail to respond can shares be offered to an outsider.
Step 2: Negotiate Terms and Execute Share Transfer Agreement
For transactions exceeding ₹5 lakhs, the parties should execute a Share Transfer Agreement that documents the commercial terms, consideration amount, payment schedule, representations, warranties, and indemnities. While not mandatory for registration, this agreement provides crucial legal protection and helps prevent future disputes between the transferor and the transferee.
Step 3: Prepare and Execute Form SH-4 with Stamp Duty
Both Transferor and Transferee must sign Form SH-4 (Securities Transfer Form) in the presence of a witness who provides their full name and address. Affix stamp duty at 0.015% of the consideration amount using adhesive stamps, e-stamp, or franking. Ensure all particulars, including distinctive numbers, consideration, and addresses, are accurately filled.
Step 4: Submit Documents to Company Within 60 Days
Deliver the executed and stamped Form SH-4 along with the original share certificate, Share Transfer Agreement (if any), and KYC documents of the transferee to the company within 60 days from the execution date as mandated by Section 56(1). Late submission may result in the company refusing to register the transfer at its discretion.
Step 5: Board Meeting and Approval of Transfer
The Board of Directors convenes a meeting to review the transfer request. Directors verify compliance with AOA restrictions and pre-emption procedures before passing a resolution. If approved, the board authorises the endorsement of share certificates. If refused, the company must send notice with reasons to both parties within 30 days under Section 58(1).
Step 6: Cancellation of Old Certificate and Issuance of New Certificate
Upon board approval, the company cancels the old share certificate by marking it "CANCELLED" and prepares a new certificate in the transferee's name. The new certificate must be delivered within ONE MONTH from receipt of the transfer instrument as per Section 56(4)(c). No additional stamp duty is payable on the new certificate issued after transfer.
Step 7: Post-Transfer Compliance Filings
Complete mandatory filings: If transfer triggers ≥10% indirect beneficial ownership, SBO files BEN-1 within 30 days and the company files BEN-2 within 30 days thereafter. For FEMA transactions, file FC-TRS on the RBI FIRMS portal within 60 days of transfer or remittance. Update the Register of Members and reflect changes in the next MGT-7 Annual Return.
👉 Further Reading: Step-wise Process of Company Registration
Share Transfer Between Residents
The simplest form of share transfer is governed exclusively by the Companies Act, 2013, and is not subject to FEMA compliance. Execute Form SH-4, pay 0.015% stamp duty, submit within 60 days, and obtain board approval. No valuation is legally mandatory, though advisable for income tax purposes under Section 56(2)(x). The process typically completes within 7-10 working days.
| No | Parameter | Requirement |
|---|---|---|
| 1 | Applicable Law | Section 56, Companies Act, 2013, read with Rule 11 |
| 2 | Form Required | Form SH-4 (Securities Transfer Form) |
| 3 | Valuation | Not mandatory (recommended for tax purposes) |
| 4 | Filing | No immediate ROC filing; updated in MGT-7 Annual Return |
| 5 | Stamp Duty | 0.015% of consideration (effective 01.07.2020) |
| 6 | RBI Reporting | Not Required |
| 7 | Timeline | Typically 7-10 working days |
Share Transfer – Resident to Non-Resident (FDI Inflow)
When an Indian resident transfers shares to a Non-Resident, the transaction falls under FDI regulations with a pricing floor requirement. The transfer price must be higher than the Fair Market Value certified by the CA/Merchant Banker using the DCF or NAV method. Form FC-TRS must be filed within 60 days on the RBI FIRMS portal. Sectoral caps and Press Note 3 restrictions apply. The process takes 15-30 days.
| No | Parameter | Requirement |
|---|---|---|
| 1 | Applicable Law | Companies Act, 2013 & FEMA (Non-Debt Instruments) Rules, 2019 |
| 2 | Pricing Rule | Price shall NOT be LESS than Fair Market Value – Rule 21(2)(a) (Price Floor) |
| 3 | Valuation | Mandatory by CA or SEBI-registered Merchant Banker using DCF/NAV |
| 4 | Filing | Form FC-TRS on the RBI FIRMS portal within 60 days |
| 5 | Documents | FIRC, KYC of Buyer, Valuation Report, Passport copies |
| 6 | Restrictions | Subject to Sectoral Caps and Press Note 3 |
Share Transfer – Non-Resident to Resident (FDI Exit)
Foreign investors exit by selling to an Indian resident, subject to a pricing ceiling to prevent capital flight. The transfer price cannot exceed the Fair Market Value. Indian buyer files FC-TRS and handles TDS deduction on capital gains. Form 15CA/15CB is required for remitting sale proceeds abroad. DTAA benefits are available with a Tax Residency Certificate. The process takes 20-45 days.
| No | Parameter | Requirement |
|---|---|---|
| 1 | Applicable Law | Companies Act, 2013 & FEMA (Non-Debt Instruments) Rules, 2019 |
| 2 | Pricing Rule | Price shall NOT EXCEED Fair Market Value – Rule 21(2)(b) (Price Ceiling) |
| 3 | Valuation | Mandatory FMV certification by CA/Merchant Banker |
| 4 | Filing | Form FC-TRS filed by an Indian Resident (Buyer) within 60 days |
| 5 | Taxation | Buyer must deduct Capital Gains TDS; Form 15CA/15CB required |
| 6 | DTAA | Check the Double Taxation Avoidance Agreement benefits |
Share Transfer – Resident to NRI/PIO (Non-Repatriable Basis)
NRI investments on a non-repatriation basis receive preferential treatment under FEMA Schedule IV and are treated at par with domestic investments. Pricing guidelines under Rule 21(2)(a)/(b) do not apply – parties can mutually negotiate price. Payment must be from an NRO account. Ideal for NRIs with Indian income wanting to invest locally with simplified compliance.
| No | Parameter | Requirement |
|---|---|---|
| 1 | Applicable Law | FEMA Schedule IV (Investment on Non-Repatriation Basis) |
| 2 | Pricing | Pricing guidelines DO NOT apply – mutually negotiated. |
| 3 | Payment | Funds must be debited only from the NRO account. |
| 4 | Reporting | As per the AD bank instructions |
| 5 | Benefits | Treated at par with domestic investment |
| 6 | Ideal For | NRIs with Indian income wanting to invest locally |
Share Transfer – Non-Resident to Non-Resident
Most complex category involving multiple regulatory layers. Pricing follows internationally accepted methodologies. An Indian company must issue an NOC confirming compliance with the sectoral cap. Prior government approval is mandatory via the FIFP portal if either party is from a Press Note 3 country. The process takes 8-16 weeks, depending on approval requirements.
| No | Parameter | Requirement |
|---|---|---|
| 1 | Applicable Law | Companies Act + FEMA + Press Note 3 (if applicable) |
| 2 | Pricing | Internationally accepted methodology (DCF/NAV/Comparable) |
| 3 | Approval | Government approval mandatory for Press Note 3 countries |
| 4 | Documents | NOC from the Indian company, beneficial ownership declaration |
| 5 | Reporting | FC-TRS with additional declarations |
| 6 | Timeline | 8-16 weeks |
Capital Gains Tax on Share Transfer: Valuation and Tax Implications
Section Introduction: Share transfer triggers capital gains tax for the transferor. For unlisted shares held more than 24 months, Long-Term Capital Gain (LTCG) is taxed at 20% with indexation benefit. Shares held for 24 months or less are subject to Short-Term Capital Gain (STCG), taxed at the seller’s income tax slab rate.
| No | Aspect | Requirement |
|---|---|---|
| 1 | LTCG (holding more than 24 months) | 20% with indexation |
| 2 | STCG (holding less than 24 months) | As per the income tax slab |
| 3 | Below FMV Transfer | Section 56(2)(x) – difference taxable if >₹50,000 (non-relatives) |
| 4 | Valuation Methods | NAV or DCF under Rule 11UA |
| 5 | FEMA Transfers | Mandatory valuation by CA/Merchant Banker |
Ben-2 Filing For Significant Beneficial Ownership
The Companies (Significant Beneficial Owners) Rules, 2018, as amended in 2024, require companies to identify individuals who ultimately own or control ≥10% shares/voting rights. If a share transfer results in the acquisition of significant beneficial ownership through indirect holdings, Form BEN-2 must be filed. When BEN-2 is Triggered
| No | Scenario | BEN-2 Required? |
|---|---|---|
| 1 | An individual buys shares directly in their own name | Generally No |
| 2 | Company/LLP/Trust acquires ≥10% shares | Yes – Ultimate individual SBO must be identified |
| 3 | Nominee holds shares for the beneficial owner | Yes – Actual beneficial owner must declare |
Penalties for Non-Compliance with Share Transfer Provisions
| No | Violation | Company Penalty | Officer Penalty |
|---|---|---|---|
| 1 | Section 56(6) – Transfer provisions | ₹50,000 + ₹500/day (max ₹2L) | ₹50,000 + ₹500/day (max ₹2L) |
| 2 | Section 56(4)(c) – Certificate delay | ₹25,000 to ₹5,00,000 | ₹10,000 to ₹1,00,000 |
| 3 | Section 90(11) – SBO non-compliance | ₹1,00,000 + ₹500/day (max ₹5L) | ₹25,000 + ₹200/day (max ₹1L) |
| 4 | Section 447 – Fraudulent transfer | Fine up to 3x fraud amount | 6 months to 10 years imprisonment |
Frequently Asked Questions
Share transfer is the voluntary act of passing title of shares from one person (Transferor) to another (Transferee) through Form SH-4 as per Section 56 of the Companies Act, 2013.
Transfer is a voluntary act (sale or gift) that requires Form SH-4 and a 0.015% stamp duty. Transmission is automatic by operation of law due to death or insolvency, requiring succession documents without stamp duty.
Form SH-4 is the Securities Transfer Form under Rule 11 – the mandatory statutory instrument for physical share transfers that must be executed, stamped at 0.015%, and delivered within 60 days.
No. Per Section 2(68), private companies must restrict share transfers through their Articles of Association. Board approval and pre-emption compliance are typically required.
No. For demat shares, transfer is effected via a Delivery Instruction Slip (DIS) to the Depository Participant. Stamp duty (0.015%) is auto-collected by NSDL/CDSL.
Pre-emption rights ensure existing shareholders have the first opportunity to buy shares being sold, protecting proportionate ownership and maintaining the company’s closely held character.
The duly executed and stamped Form SH-4 must be delivered to the company within 60 days from execution as per Section 56(1).
Essential: Form SH-4, original share certificate, board resolution, PAN, and address proof of transferee, for non-residents: valuation report, FC-TRS documents.
Yes. Both signatures must be witnessed by a competent adult, who must provide their signature, full name, and address. The witness cannot be an interested party.
File an FIR, publish a newspaper notice, submit an indemnity bond and affidavit. The board approves duplicate certificates (2-3 weeks), which can then be used for transfer.
Section 56(4)(c) mandates delivery within ONE MONTH from receipt of the transfer instrument. Failure attracts penalties of ₹25,000 to ₹5,00,000.
Yes. A valid POA holder can sign on behalf of either party with the POA details mentioned on the transfer deed.
0.015% of consideration (effective 01.07.2020 under Finance Act, 2019), uniform across India for both physical and demat transfers.
Form SH-4 is mandatory for registration (0.015% stamp duty). Share Transfer Agreement is optional but recommended for documenting commercial terms and providing legal protection.
The transferor is statutorily liable, though parties can agree otherwise. In demat transfers, the buyer pays through depository auto-collection.
No. Stamp duty on certificates is one-time at the original allotment. Only Form SH-4 attracts duty during transfer.
Not for resident-to-resident under the Companies Act. Mandatory when: AOA requires it, transfer involves non-residents (FEMA), or shares are transferred below face value.
LTCG (>24 months): 20% with indexation. STCG (≤24 months): As per the income tax slab rate.
Under Rule 21(2)(a) of FEMA NDI Rules, the price must be ≥ Fair Market Value (price floor).
Under Rule 21(2)(b), the price must be ≤ Fair Market Value (price ceiling) to prevent capital flight.
FC-TRS is filed on the RBI FIRMS portal within 60 days of transfer or remittance for all resident-non-resident share transactions. Resident party files.
Press Note 3 (2020) requires prior government approval for investments from land border countries (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan).
Yes. Schedule IV investments (non-repatriation) are treated as domestic – Rule 21(2)(a)/(b) pricing guidelines don’t apply.
FC-TRS, valuation certificate, tax residency certificate, FIRC, passport copies, overseas address proof, and Press Note 3 declaration, if applicable.
The company must send a refusal notice with reasons within 30 days (Section 58). Appeal to NCLT within 30 days of notice or 60 days from delivery if no notice.
When the transfer results in ≥10% indirect beneficial ownership. SBO files BEN-1 within 30 days; the company files BEN-2 within 30 days of BEN-1.
No. Private companies must maintain a minimum of 2 shareholders (Section 3). Convert to OPC first if single ownership is intended.
Yes. Execute Gift Deed with Form SH-4. Stamp duty applies to the market value. Section 56(2)(x) applies if non-relative and value >₹50,000.
If Form SH-4 was validly executed before death, the company can proceed. Executor/legal heir completes formalities with succession documents.
For non-small private companies, Rule 9B compliance (deadline passed 30.06.2025) is required. Non-compliant companies face transfer restrictions.