Is It Possible to Transfer Shares in a Private Limited Company?

Know about the sharing of transfers in private companies. From forms to valuation, understand the process effortlessly and completely.

Shares are an entity of ownership interest in a firm. Share transfer highlights the voluntary transfer of a share from one party to another. A business can transfer its share freely. However, the articles of implementation may present specific limits to transfer shares to private limited companies. The ownership evident for a private limited company is depicted by the company’s shareholding competency. To transfer ownership or induct new investors of the corporation, the private limited company’s share needs to be transferred. Let’s explore how to transfer shares in a Private Limited Company in the following sections!

Transfer Shares in a Private Limited Company Restrictions

A private limited organization consists of a closed corporation of members, which is similar to a partnership corporation. Thus, transferring shares to private limited companies can be restricted by the Articles of Association (AOA). Thus, the Articles of Association (AOA) of an organization must be examined thoroughly before initiating the share transfer process. 

There are usually two forms of restrictions concerning the right of shareholders to transfer shares. These are:

• Rights of preemption: When a shareholder is eager to sell some of his shares, these shares must first be offered to the existing members of the private limited corporation at a price outlined by the Auditors and the Directors of the organization. The share’s value can be depicted considering the method or formula prescribed in the Articles of Association (AOA). If the existing shareholders are not interested in buying those shares, they can then be freely transferred to any outsider.
• Refusal by the Directors: The Directors possess the power to refuse registration of the transfer of shares considering definite circumstances marked in the Articles of Association (AOA).

Thus, to transfer shares to a pvt ltd company registration, the only restriction evident in the Articles of Association (AOA) is marked as legally binding. The private agreements between the shareholders are not binding either on the shareholders or on the company. Additionally, share transfer is restricted only by the Articles of Association (AOA). The right to transfer shares to private limited companies cannot be a complete ban or prohibition on share transferability.

Share Transfer Procedure

To initiate the process of share transfer, the following steps must be considered:

• Step 1: Reviewing the Articles of Association (AOA)

The Articles of Association (AOA) of the private limited organization must be examined and reviewed. This helps in addressing any prevalent restrictions.

• Step 2: Providing notice to Directors

The Directors must be notified by the shareholders of the company regarding the willingness to transfer shares to a private limited company.

• Step 3: Depicting the price

The price must be determined by the Articles of Association (AOA) at which the company’s shares will be first offered to the existing shareholders of the organization. This price is generally decided by the Auditors and the Directors of the company.

• Step 4: Notifying the shareholders about share availability

The organization must notify other shareholders regarding the share availability, price of the available shares, and the last date to buy the shares. If the existing shareholders are interested in purchasing the shares, the shares will be allocated to them. In the absence of a shareholder’s interest, the same is transferred outside.  

Process of Transferring Shares of a Private Limited Company

To mark the success rate of the share transfer, certain steps must be followed:

1. The first step is to obtain a share transfer deed in a prescribed format.
2. The second one is to initiate the share transfer deed, which is signed by the Transferee and the Transferor.
3. The third step is to stamp the share transfer deed as per the legislative regulations enforced in that region, state, or country.
4. The fourth one is to possess the sign of a witness considering the share transfer deed with the signature, address, and name of the witness mentioned.
5. The fifth step is to share the allotment letter or certificate with the transfer deed, thereby, delivering it to the same organization.
6. The sixth step involves the processing of the company’s documents. If approved, a new share certificate is issued in the transferee’s name.

Document Required for Share Transfer

All documents must be self-attested to ensure authenticity during the transfer shares in a Private Limited Company.

• Ensure that copies of the documents are clear, valid, and easily understandable.
• The share transfer form should be signed by all involved parties to validate the transaction.
• If any consideration is involved in the transfer, proper documentation should prove the payment.

Please note that the above list provides an overview, and it is essential to refer to the specific legal and regulatory requirements in the relevant jurisdiction for a comprehensive understanding of the documentation needed for share transfer. Consulting with legal professionals or authorities can ensure compliance with local regulations and expedite the process.

Advantages of Transfer Shares in a Private Limited Company

There are several benefits of transferring shares to private limited companies. The advantages of equity share investment are capital increments, pay entitlements, limited liability, tight shares, control, demand over assets and earnings, bonus shares, liquidity, and others. The benefits are mainly:

• Lowering the tax bill
• Owing a growing business
• Alignment with the new private equity buyer
• Checklist for Share Transfer
• Declaration of notice to transfer the share to the organization
• Get the agreement form of share transfer duly performed by both the transferor and the transferee
• Form needs to be accurately marked and recorded
• Notification regarding the period for the security of devices for transfer with the company is essential
• Attachment of share transfer stamps on the transfer agreement
• Share the letter of distribution, as well as the certificate or document
• Delegation of authority
• Board Resolution

Refusal for Registration of Share Transfer

To transfer shares to a private limited company, there can be an incident when the private limited company refuses to register the share transfer. The organization within 30 days after intimation of the transmission must send the refusal notice to the transferee, as well as the transferee providing valuable reasons for the refusal. The transferee may appeal to the Tribunal concerning the refusal within 30 days from the date of receipt of the notice. It can also be done in the case where the notice is sent by the organization. This also needs to be initiated within 60 days from the date of transfer.

Difference between Issuing Shares and Transferring Shares

When a private limited company is built, it is necessary to decide how many shares to issue. The shares are usually allocated among the shareholders as per the agreed terms and conditions. Shares can also be transferred between shareholders at any point in time. However, it is significant to note that a share transfer does not decrease or increase the share numbers that are eminent in circulation.

For further information related to transfer shares to private limited companies, check out Vakilsearch’s website. 

FAQs

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• Requirements of Convert Private Limited to Public Company
• How to Convert a LLP to Private Limited?
• Register for Private Limited in India