1- being a partner in a pvt ltd. company can i sell my shares to some other person?
2- If yes then does this require the approval of the present directors?
please guide
bhargava (marketing) (55 Points)
17 January 20121- being a partner in a pvt ltd. company can i sell my shares to some other person?
2- If yes then does this require the approval of the present directors?
please guide
CMA.ch.raja krishna prasad
(CMA CS(final) CAIIB M.B.A M.Com)
(173 Points)
Replied 17 January 2012
| Originally posted by : bhargava | ||
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It is also important to see that these restrictions are not construed as a ban or a prohibition on the transfer of shares. The Courts have consistently held that the restriction upon transfer means any restriction that will give some control to the company over transferability of shares[15]. It does not mean a prohibition on the transfer of shares. It was held in Chiranji Lal Jasrasaria v. Mahabir Dhelia[16]that a restriction which amounts to a prohibition on transfer of shares or which precludes a shareholder altogether from transferring is invalid. Moreover a prohibition on the transfer of shares will amount to violation of Section 82 of the Companies Act, 1956 and Section 6 of the Transfer of Property Act, 1872. Therefore if a clause in the articles provides that shares are not transferable but heritable will be valid. This is because: Shares are property and under Section 6 of the Transfer of Property Act, 1872 prohibiting transfer of property is not allowed. Transferability is the general nature of property and even when there is a restriction on transfer, when the person dies the restriction will not apply.
Need for Restrictions on the Transfer of SharesIn the United States of America Private Companies are referred to as ‘Close Corporations’.[17] This term implies that private companies are closely knit family or friendly affairs. The members of a private company are connected by bonds of kinship, friendship or similar close ties and the intrusion of a stranger as a shareholder would be felt to be undesirable unless his admission is accepted by the existing members. Some private companies are in fact so constructed so as to amount to in economic terms as nothing more than incorporated partnerships with extremely close ties between the members. Thus these restrictions are needed in order to preserve the soul of the private company ie. the partnership principle. These restrictions on transfer of shares prevent anybody or everybody from acquiring shares of the company by transfer and help to keep the close ties amongst the members intact. Thus the main reasons for which Restrictions on transfer of shares are needed in private companies are:[18]
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Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 17 January 2012
Yes you can transfer your shares to some other person subject to the approval of board of directors. For a valid reason director reserves the right to reject your transfer.
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TRANSFERABILITY OF SHARES IN A PRIVATE COMPANY
Private company shall restrict right to transfer its shares
Section 3(1)(iii)(a) of the Companies Act, 1956 provides that the Articles of a private company shall restrict the right to transfer the company's shares.
Restriction on transfer not applicable in certain cases (Exception)
Restriction upon transfer of shares is in private company are not applicable in the following cases:—
(i) on the right of a member to transfer his/her shares cannot be applicable in a case where the shares are to be transferred to his/her representative(s).
(ii) in the event of death of a shareholder, legal representatives may require the registration of share in the names of heirs, on whom the shares have been devolved.
(iii) in respect of shares which are proposed to be issued on a rights basis, existing members would have a right to renounce shares likely to be allotted to them. If the existing shareholders renounce their shares then these shares will be allotted to the renouncees for the first time and therefore no transfer of shares will take place.
Regards
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 17 January 2012
Procedure for transfer of shares of private company
Generally articles contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—
(i) Transferor should give a notice in writing for his intention to transfer his share to the company.
(ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.
(iii) Such price is generally determined by the directors or the auditors of the company.
(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.
You may also download my file covering share transfer as attached below:
CA Sumiit B Nagpal
(Business)
(1077 Points)
Replied 17 January 2012
No need to say a single thing more , ankur sir has explained beautifully
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