Shareholders are owners of Company. The shareholders transfer their shares in Private Limited Company to induct new shareholders in the company. In this article we will discuss about procedure for transfer of shares of Private Limited Company.
The first step to transfer shares of a Private Limited Company is to review the Articles of Association of Company as few clauses of Articles of Association might restrict transfer of shares. Generally the restrictions for transfer of shares are of two types
- Rights of preemption or first right of refusal by members
- Directors’ power to refuse transfer
Right of preemption: When an existing shareholder wishes to transfer shares in a Private Limited Company, he must offer the shares to the other existing shareholders first. If the existing shareholders are not interested, the shares can be transferred to an outsider. Here the price of shares is determined by the Directors or Auditors of the Company based on formula prescribed in the Articles of Association of the Company.
Directors’ power to refuse transfer: The directors of the Company have powers to refuse transfer of shares under certain circumstances as prescribed in the Articles of Association.
Share transfer can be restricted through Articles of Association only and no other agreement between the shareholders can restrict transfer of shares. Further, the Articles of Association can only restrict the transfer of share but the transfer of shares cannot be prohibited by it.
The step by step procedure for transfer of Shares is as given below:
Step 1: Get Share Transfer Form
Step 2: Fill up necessary details in Share Transfer Form
Step 3: Pay Stamp Duty on transfer of stamps as per Indian Stamp Act.
Step 4: Attach original share certificate to transfer form and submit it with the Company
Step 5: Company will transfer the shares in the name of transferee if transfer is approved.
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