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Articles of pvt ltd company

mahesh poddar (business) (47 Points)

21 May 2013

articles of a private limited company allowing free transfer of shares by members to their wives and children who are not members.

is this article valid under company law or is it compulsory that shares cannot be freely transferred to non members even if article allows such free transfer to a specified class who are not members-in this case to the wives and children of the members?

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3 Replies

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 21 May 2013

Transfer of shares involves a contract between the seller and buyer of shares. Company has to just record the transfer in its records if it is as per applicable laws. As regards consideration for transfer, the company does not come into picture. Why it should be part of the Articles of the company is not clear.

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mahesh poddar (business) (47 Points)
Replied 21 May 2013

dear mr p c agarwal

first of all thank u for yr post.

i think u misunderstood my query.

i have not stated anything about consideration for transfer of shares.

articles of association of most pvt ltd companies place restriction on transfer of shares to non members and at the same time allow free transferability between the members.

my query is that if the articles of association of a pvt ltd co. also allow free transferability of shares by existing members to their wives and children who are not existing members of the company then in such a case is it valid under the company law?

in other words can article provide for free transferability by a member to a specified class who are not members?

is such an article valid or does it violate the company law by allowing free transferability of shares to a certain class of non members?

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 21 May 2013

Thanks for clarifying your query. The Companies Act does not provide that the shares of a private company cannot be transferred to non-members. Hence the said provision in the articles for free transferability to family members is perfect and legal.

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