Transfer of shares refers to the transfer of ownership. Shares of a company are movable property and thus can be transferred like any other property. In other words, when an existing shareholder transfers the issued shares to the other person who is registered as the holder of those shares,the process can be termed as transfer of shares. A public company can freely transfer its shares but there are some restrictions on the transfer of shares by a private company. The restrictions are imposed in order to protect the rights of investors and shareholders. Section 56 of the Companies Act, 2013 mandates that a company shall register a transfer of securities of the company only when there is a proper instrument of transfer as per the format laid down in Form No SH. 4. The section 56 also states that if a company has no share capital, it can not register a transfer of securities of the company, or the interest of a member in the company.

Transfer of Shares in a Private Company: Steps Involved
  • Written notice is submitted to the company by the seller defining his intention to transfer the shares
  • Members of the company are informed and invited to buy the shares
  • Form No- SH.4 is filled up by the prospective buyers
  • Duly stamped transfer deed is executed by the transferor and receiver
  • Allotment letter or share certificate with the transfer deed is sent to the company within sixty days from the execution date.
  • Shareholders Agreement and Share Transfer Agreement is executed to maintain relations with the shareholders.

In order to understand the statutory provisions related to transfer of shares, Section 56 of Companies Act, 2013, Rule 11 of Companies (Share Capital & Debentures), Rules 2014 and provisions given in model articles of association in Table ‘F’ of Schedule-I can be followed.

As the aforementioned third step of transfer of shares in a private company involves filling up the form no-SH.4, it has to be taken care that the share transfer deed in form SH-4 is duly executed by the transferor and the transferee. Moreover, the form needs to be duly stamped with accurate date.

The form no-SH.4 should include the specified name of both the transferor and transferee, their father’s name, address, occupation and folio no.. It should also include Distinctive No, Certificate No. of share transferred, Nominal Value of Shares and Consideration Received.

How the shares can be transferred in physical form?

Q1. What is Allotment of Shares at Preferential Basis?

Ans: In order to transfer the shares in physical form, share certificates along with the duly filled in share transfer deed are required to be sent. Apart from that, it is to be noted that the share transfer deed must also be executed, stamped by affixing share transfer stamps to the share transfer agents of the company.

Q2. How to transfer the shares if a shareholder dies?

Ans: After the death of a shareholder, the right to his interest in the shares transfers to the person who inherits them under his will. Thus, the shareholder rights of the deceased are administered by his or her executors provided there is a will and administrators of the estate if the shareholder has died intestate.

Q3. How can the legal heir get the shares transferred in their names if the deceased family member had left a will?

Ans: In order to get the shares transferred, the company requires evidence of probate of the will or letters of administration in order to establish the rights of the personal representatives in respect of the shares.