26 July 2011
can anyone tell me about transfer of shares ??? i have heard that shre transfer is easy in public co in comparison to private company ?? one private equity fimrs invests in our company and they emphasize that u need to convert in private limited from public for the aforesaid reason.. why is it so ????
26 July 2011
It is not that easy. Yes it is easy if it is Limited Public Company. This means it should be registered with SEBI as well as Stock Exchange otherwise the same formalities as that of a private Limited company
25 July 2025
Great question — this is a common area of confusion when comparing public vs. private companies in India, especially around share transferability. Here's a clear explanation:
🔍 Key Difference: Share Transfer Rules Under the Companies Act, 2013, the main distinction between public and private companies lies in the restriction on transferability of shares:
✅ Public Company (Unlisted or Listed) Definition (Section 2(71)): A public company does not restrict the transfer of its shares.
✔️ Shares are freely transferable, even if it's not listed on a stock exchange.
However:
In practice, some public unlisted companies try to impose restrictions via their Articles of Association (AoA).
Such restrictions may not be valid if they conflict with the fundamental nature of a public company under the law.
📝 Key Point: In a public company, shares are presumed to be freely transferable, and any restriction must be narrowly interpreted.
🚫 Private Company Definition (Section 2(68)): A private company must include a restriction on transfer of shares in its Articles of Association.
❌ Shares are not freely transferable.
The company may impose:
Right of first refusal (ROFR)
Board approval requirement before registering a transfer
Lock-in periods or tag-along clauses
📝 Key Point: In a private company, the transfer of shares is subject to internal rules, and outsiders cannot easily acquire ownership without Board consent.
💼 Why Would a Private Equity (PE) Firm Prefer a Private Ltd Co.? PE firms often prefer private companies due to:
Tighter control over entry and exit of shareholders.
Better confidentiality — private companies aren’t required to publicly disclose as much information as public ones.
Customised Shareholders’ Agreements — easier to enforce in private cos.
Flexibility in structuring investments, exit clauses, veto rights, etc.
🔁 If you're converting from public to private:
It gives the PE firm more control and reduces risk of share dilution or hostile takeovers.
📌 Answer to Your Specific Questions: Is share transfer easier in a public company?
Yes, because there are no restrictions under the law (Section 58 of the Companies Act, 2013) unless otherwise imposed.
Is it true that in a public (non-listed) company, shares are fully transferable?
Legally, yes, unless the Articles of Association impose lawful restrictions — which is rare and difficult to enforce in a public company.
⚠️ Important Legal Reference: Section 58(2) of the Companies Act, 2013:
“The securities or other interest of any member in a public company shall be freely transferable.”
BUT: In private companies, restrictions in the Articles of Association are enforceable.
✅ Conclusion: ✔️ Yes, share transfer is easier in a public company by design — that's why your PE investor suggested converting to private, so they can customize ownership rules.
✅ You can structure drag-along/tag-along rights, exit conditions, etc., better in a private limited company.
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