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According to the Companies Act of 2013, a share is an indivisible unit of capital representing a company’s connection with its shareholders. Even after a company has been formed, you can transfer shares as long as sufficient shares are available.
Since company shares are movable property, they can be transferred just like any other type of asset. Only a contract or agreement between two or more people will allow for the transfer of shares. The provisions of the Companies Act primarily address the transfer and transmission of securities.
Shares are often transferred through a gift or a sale. The procedure by which shares are moved from one shareholder to another in a firm is known as a share transfer. The conditions outlined in the company’s articles of association regulate such transfer agreements. A firm that is incorporated would fall under the definition of a separate legal entity. The position of the members would differ from that of the firm following formation.
The transfer of shares entails the passing of a business member’s rights and perhaps even duties. When a shareholder decides they no longer want to be a firm member, their rights and obligations are transferred to someone who wants to join. So, absent any clear limitations outlined in the company’s articles, shares in a business are transferable just like any other movable property.
Who is involved in share transfer?
- Subscribers to the memorandum
- A deceased person’s administrator or executor
An individual who transfers their shares is referred to as a transferor. A transferee is an individual who gets shares from the transferor.
Reasons for transfer of shares
- Shareholder recoups their investment when they leave the business
- When a stockholder passes away
- The removal or resignation of a director who is also a shareholder.
- Shares are given to a spouse or relative as a present
- The company is being transferred to or sold to another party
- Restructuring within the same group of firms
- Insolvency of the business
- The shareholder’s incapacity
The procedure of transfer of shares
Step 1- Verify your ownership of shares
You must verify the total number of shares you own, including those you intend to hold and distribute.
Step 2 – Notification of Share Transfer Intentions
The seller gives the company written notice of his intention to transfer the shares. It is announced and extended an invitation to purchase shares to the company’s current shareholders.
Step 3 – Conduct a Board Meeting
According to the board agreement, the transfer of shares requires board approval before it may be carried out. Hence, call a board meeting and ratify the move.
Step 3 – Prepare documents for Share Transfer
Once the transfer agreement has been finalized and the consideration for the transfer has been determined, Form No. SH.4 is completed by the potential buyers and signed by the transferor and transferee in the presence of a witness. The transferor then gives the transferee both the SH-4 and the share certificate. Affixing share transfer tickets to the share transfer form is proof of payment for the necessary stamp duty on share transfers.
The transfer shares must be obtained as specified in Form SH-4. This form must be completed accurately and with the appropriate information before being sent to the Director for endorsement (DOE).
Step 4 – The Transferor sends the Company the Share Transfer Form and Certificate
The transferee requests that the membership register be updated with his information in place of the transferor’s information after the transfer has been performed, witnessed, and duly stamped. The company notes such moves.
Step 5 – The company issues new Share Certificates
The transfer of shares is documented in the register of share transfers, and a replacement share certificate is issued in the name of the new company member once the firm’s board of directors has given its proper permission.
Documents required for transfer of shares
- The transferable share’s original certificate
- A share certificate issued with a stamp duty payment certificate
- Valuation and the share transfer agreements
- A properly completed and signed share transfer form
- Documentation proving the transferor’s and transferee’s identity and addresses.
- Evidence of any transfer consideration payments.
- All additional transfer-related certificates
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