Share transfer is a process by which we can transfer the existing shares from one person to another person either by sale or gift or generally to introduce a new shareholder. If a company is having enough shares, it is very easy to transfer shares in a limited company after the incorporation. Therefore, shares are transferable like a movable property, if there are no restrictions imposed on share transfer under the articles of association.
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Persons Involved In The Process Of Share Transfer
The parties involved in the process of share transfer are given below –
- Subscribers to the memorandum
- Company (Whether listed/unlisted)
- Legal representative (In case of deceased)
Procedure for Share Transfer
The procedure for share transfer is as follows –
- Transfer deed - Share transfer deed is an instrument used for transferring shares from one person to another. There are two parties involved in a transfer deed – Transferor & transferee. Transferor is a person who transfers his or her shares to another person whereas transferee is a person to whom the shares are transferred. Transfer deed should be duly stamped & delivered to the company along with share transfer certificate. SH-4 form is used to transfer shares from one person to another.
- Acknowledgementd - Some companies sends a notice or acknowledgement of the instrument to the transferor and some companies issue transfer receipt after transferring of shares. Basically, a notice or acknowledgement is usually in the form of a letter containing checklist of the transfer documents. The company will not register the transfer, if the transfer application is partly paid by the transferor alone and there is no communication from the side of transferee.
- Document scrutiny - In the third stage, scrutiny of all the documents takes place. All documents are scrutinized within 3 to 5 days from the date of receipt of the transfer of documents.
In case the documents are not acceptable, they are returned back to the transferee. Documents are also returned in case the signature of the transferor on the transfer instrument differs from the signature on the company’s record.
- Approval from the board - In the fourth step, if everything is correct and accepted after scrutiny of documents, transfer of share will be approved by the board. If articles of association empowers board to delegate its power in relation to approval of share transfer. The power may be delegated to any other committee who might not be the company’s directors.
- Registration - Registration is very necessary to become a member of a company. A transfer is incomplete without doing registration of share transfer. A share transfer form is filled by the transferee and agrees to accept the shares. When a company approves the form and registers the transfer, the transferee name is added to the registry of the members of the company. Maintaining the register is not a mandatory requirement.
- Delivery of share Certificate - When transfer becomes effective after the approval by the company. The company hast to deliver the share certificate within 1 month from the date of receipt. The share certificate must be endorsed with the respective name of the transferee.
Penalties for any Default in Share Transfer
Minimum of Rs.25000 is to be charged from the company as a penalty for any default. The maximum amount chargeable to penalize the company is Rs.500000.
In case officer is penalized, minimum of Rs.10000 and maximum of Rs.100000 will be charged as penalty.
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