A private limited company's ownership is decided by the Company's shareholders. The share of the private limited company would need to be transferred in order to accept new investors or transfer ownership of the firm. This article examines the share transfers for private limited companies.
Share Transfer Restrictions in AOA
A private limited company is viewed as a "closed corporation" of its members, much like a partnership firm. As a result, limits on the transfer of shares in a Private Limited Company may be included in the Articles of Association (AOA). Therefore, it is necessary to review the Company's Articles of Association before beginning the share transfer procedure.
Shareholder transfer rights are typically restricted in one of two ways:
- Pre-emption rights: Before selling any or all of his shares, a shareholder must first offer them to other existing members of the private limited company at a price determined by the directors or the company auditor. The value of the shares may be determined using the formula or method described in the articles of association. If there is no interest from a current shareholder, shares of the company may be freely transferred to a third party.
- Directors may have the authority to decline the registration of a share transfer in specific situations that are outlined in the Articles of Association.
The only limitations recognized as being enforceable by law are those stated in the articles of association. Any private agreements formed by the shareholders are not binding on the corporation or the shareholders. Furthermore, the only document with the ability to prohibit share transfers is the Articles of Association. The capacity of a private limited business to transfer shares should not be construed as a total limitation or outright prohibition on share transferability.
Transfer of Company Shares Procedure Initiation
Procedure for Share Transfers in a Private Limited Company
The procedures below must be performed in order to start the share transfer process:
- Step 1: Review the AOA: The Private Limited Company's articles of association must be evaluated, and any limitations must be resolved.
- Step 2: The shareholder must inform the company's director in writing of their desire to transfer their shares.
- Step 3: Establish the price in accordance with the Articles of Association at which the Company's shares will be first sold to its current shareholders. (Usually, the company's board of directors or an auditing firm sets this price.)
- Step 4: After that, the firm must inform the other shareholders of the availability of shares, the deadline for purchases, and the price at which shares are being offered.
If any current shareholders approach the company to acquire shares, those shares must be allocated to them. The shares can be transferred to the outsider in the event that the current shareholder is not interested or there are extra shares available.
Process - Transfer of Company shares
The actions below must be taken in order to complete the share transfer:
- Step 1: Obtain a share transfer deed in the format required as the first step.
- Step 2: Execute the share transfer deed when the Transferor and Transferee have properly signed it.
- Step 3: Stamp the share transfer document in accordance with the Indian Stamp Act and the State's current Stamp Duty Notification.
- Step 4: Have a witness provide their name, address, and signature on the share transfer deed.
- Step 5: Deliver the transfer deed to the company together with the share certificate or letter of allocation.
- Step 6: The business must review the paperwork and, if accepted, issue a new share certificate in the transferee's name.
CAclubindia
