In Private Limited Company, the ownership is calculated by the shareholders of the company. If you want to induct new investors or transfer the ownership of the company then the shares of the private limited company would have to be transferred. This article focuses on the share transfer procedure in Private Limited Company.
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A private limited company is a closed corporation of members very similar to a partnership Firm. Hence, the share transfer in a private limited company can be restricted by the AOA (Article of Association). Therefore, the review of Article of Association is a must at the first step to begin the share transfer procedure.
The restrictions have been imposed on the right of the shareholders to transfer shares are usually in two forms:
- Rights of pre-emption: In case, the shareholder wishes to sell his shares then such shares must be offered to other existing members of the Private Limited Company at a price determined by the director or the Auditor of the company. The shares value can also be determined which is based on the formula prescribed in the Articles of Association. When no existing shareholders are interested then shares of the company can be freely transferred to an outsider.
- Refuse powers of Directors: The directors can have the powers to refuse the registration of transfer of shares under the certain circumstances as prescribed under Articles of Association.
The restriction contained the Articles of Association would be considered as legally binding only. Any of the private agreement between the shareholders will not bind either on the company or on the shareholders. Moreover, Articles of association can only restrict the share transfer. The right to transfer the shares of a private limited company cannot be a total prohibition/ban on the share transferability.
There are certain steps which should be followed to initiate the share transfer procedure. These are given below:
- First of all, Review the Articles of Association of the Private Limited Company. Restrictions if any must also be addressed.
- Secondly, It is mandatory for the shareholders to give notice in written form to the types of Director of the company about the intention to transfer a share of the company.
- Third, Always determine the price as per Articles of Association at which the shares of the company will first to be offered to present shareholders of the company.
- Fourth, It is compulsory for the company than to give notice to the other shareholders about the availability of share. The last date to purchase the shares and the price at which the share are available must also be written.
If in case, any of the present shareholders come forward to purchase the shares then such shares are allowed to allot them. When no present shareholder is interested or excess shares are available then the same can be transferred to the outsider.
If any of the present shareholders come forward for the purchase of shares, such shares must be allotted to them. In case no present shareholder is interested or excess shares are available, the same can be transferred to the outsider.
Following are the steps to be followed while transferring shares of a Private Limited Company:
- Step 1: Obtain the share transfer deed in the prescribed format.
- Step 2: The share transfer deed must be executed duly signed by the Transferor and Transferee.
- Step 3: Stamp the share transfer deed as per the Indian Stamp Act and Stamp Duty Notification in force in the State.
- Step 4: Must have a witness sign the share transfer deed with his/her signature, name and address.
- Step 5: The share certificate/ Allotment letter must be attached with the transfer deed and deliver the same to the Company.
- Step 6: The company must process the documents and if approved, issue new share certificate in the name of the transferee.
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