How are shares transferred in a private company?
Shares in a private company are transferred by an instrument in Form SH-4, executed by the transferor and the transferee, stamped, and delivered to the company within 60 days of execution, with the share certificate. The articles decide whether existing members are offered the shares first. The transfer does not create new shares.
What instrument is used?
Section 56 says the company does not register the transfer unless that instrument has been delivered in those 60 days. After the company receives it and the articles allow the transfer, the company delivers the certificate within one month of receipt. A private agreement between shareholders can bind those parties. It does not, by itself, bind the company unless the articles carry the same restriction. What the articles are is on the articles page.
What can the articles require?
Section 2(68) requires a private company to restrict the right to transfer its shares. The usual restriction is a first offer to the other members, at a price the articles describe. The Act does not set one formula for that price. If the articles give the board a power to refuse, the company sends notice of the refusal. A transfer that the articles allow is then recorded in the register of members. How a private company is formed is on the private-company page.
What is not a transfer?
An allotment of new shares is a return in PAS-3, not Form SH-4. Transmission on the death of a member is not a sale between a transferor and a transferee. Stamp on the instrument is a state charge. This page does not quote a rate, and a transfer does not, by itself, reduce anyone’s tax.
Frequently asked questions
Four questions cover the form, a first offer, stamp, and death.
Is the form STK-2 or PAS-3?
Neither. The instrument is Form SH-4. PAS-3 is a return of allotment of new shares. STK-2 is a company strike-off form.
Must every private company offer the shares to other members first?
Only if the articles say so. The Act requires a private company to restrict transfers. The method, including a first offer to existing members, is what the articles write.
Is stamp duty one national rate?
No. The instrument is stamped under the Stamp Act as it applies in that state. This page does not quote a rate.
Does death use the same form?
Transmission to a legal representative on death is not a sale. The company asks for the documents of title it needs. It is not the same steps as a transfer for a price.
Sources
A transfer of securities is section 56 of the Companies Act, 2013. A private company’s restriction on transfer is section 2(68). The articles are where that restriction is written.