Share transfer is one of the core issues of corporate management and investment in India. It is a way of changing the shareholders by selling, gifting or in other forms the shares one owns to someone else. For any shareholders and companies to understand or undertake this processes, it is important to grasp all legal frameworks associated with the transfer of shares. Hence, in this complete guide, let’s discuss the important area of share transfer along with its legal requirements, types, processes, and where a professional like CS Priyam Gupta comes into operation.
The legal structure within which shareholders may transfer shares:
The sale of shares in India is regulated through several provisions of law and regulations predominantly under the placement of the Companies Act, 2013 and the Securities Contracts (Regulation) Act, 1956. Such laws are meant to ensure that the transfer process is not influenced in any form and was done in an open manner and notified as required by the articles of the company.
- India transfer of shares: The transfer of shares was prescribe in the Companies Act of 2013 especially for private and public limited company. While the provisions of the Act in relation to the transfer and transmission of shares are to be found at section 44, 56, and 58. It prescribed that the transfer should be effected through a proper instrument and stamped and that the instrument should be transmitted to the company accompanied by the share certificate.
- Securities Contracts (Regulation) Act 1956: This act regulate the securities that are traded in India also contain provisions concerning the transfer of shares in listed companies. It gives an assurance of the correct execution of the share transfer exercise in a more regulated and equitable way hence safeguarding the interest of the investors.
- Depositories Act, 1996: The Act is instrumental in transferring of shares with the new trend of dematerialization of shares. It enables shares to be in electronic form this make the transfer of shares to be faster more secure and not tiresome.
Types of Share Transfers
The transfer of shares can be of different types, that is, depending on the position of the transferor and the transferee. The two main types of share transfers are:The two main types of share transfers are:
- Voluntary Transfer: This is the most common type of transfer where shares are sold or gifted other he current owner of the shares. It can be done through completing a sale transaction whereby the buyer makes a payment for the shares, or it can be done by way of gift where there is no cash consideration involved. Voluntary transfers are mainly associated with the free market where shareholders sell shares in an endeavour to gain profits.
- Involuntary Transfer: These transfers are as a result of events that cannot be within the control of the shareholder for instance death, insolvency or legal processes. For example, in case of the death of the shareholder, the shares could be transmitted to the legal beneficiaries or nominees. In the same manner, in regard to insolvency, shares may also be morched to the creditors in accordance with the order of the court.
Some policies regarding transfer of shares Are
Reselling of shares in India is formal and systematic and strict regard of certain legal formalities has to be made so that the transaction is not contrary to law. It is slightly different depending on whether the shares are certificated or in dematerialized form.
1. Transfer of Physical Shares
For companies where shares are still held in physical form, the transfer process involves the following steps:For companies where shares are still held in physical form, the transfer process involves the following steps:
- Execution of Share Transfer Deed: Share transfer deed must be made in Form SH-4 as prescribed under the Companies Act, 2013 wherein both the transferor and transferee sign it. The deed, including the recitals, has to comply with the provisions of the Indian Stamp Act, 1899 and both the parties have to sign the deed.
- Delivery of Documents: The transfer deed together with the share certificate that was initially issued to him has to be delivered to the company’s registered office. These should be accompanied by any other document that fits the case for example proof of identity of the transferee.
- Verification by the Company: The company will also cross-check the documents and confirm to their clients whether the transfer deed was well executed and stamped. The company’s board of directors will then endorse the transfer, and the aspersion will be passed to the shareholders.
- Issuance of New Share Certificate: In case of the approval of the transfer the company shall emit a new share certificate in the name of the transferee and the register of the members shall be altered.
2. Transfer of Dematerialized Shares
Due to the increased use of dematerialization most of the shares traded in India are in electronic form through depository centers such as NSDL and CDSL. The transfer process for dematerialized shares is more streamlined:The transfer process for dematerialized shares is more streamlined:
- Initiation of Transfer: The transferor has to begin the transfer by filling and sending a delivery instruction slip (DIS) to the depository participant (DP). The DIS should bear details of the shares to be transferred; the ISIN and the DP ID of the transferee.
- Processing by Depository: The DP will scrutinize the DIS and transfer the request to the depository who in return will electronically transfer the shares to the demat account of the transferee.
- Confirmation of Transfer: The depository will send a confirmation of the transfer both to the transferor and the transferee and the transferee will receive the shares in its depository’s dematerialised account.
Key Considerations and Compliance
While transferring shares, both the transferor and transferee must ensure compliance with various legal requirements to avoid any disputes or penalties:While transferring shares, both the transferor and transferee must ensure compliance with various legal requirements to avoid any disputes or penalties:
- Stamp Duty: There are basically few formalities to be complied with in case of physical shares which include payment of stamp duty on the transfer deed. Stamp duty is calculated based on the purchase price or the applicable state standard depending on the state and adequate provision should be made.
- Time Limit: The transfer deed and share certificate must be lodged with the company within period of sixty days from the date of execution. If this is not done, then the transfer that has been done can be nullified.
- Approval from Board of Directors: Where the shares are of a private company, then the board of directors has the powers to allow or disallow this transfer. The rules of transfer of shares of the company can be further regulated by the articles of the company.
- Compliance with SEBI Regulations: In the case of transfer of shares of a listed company, the rules and regulations of the SEBI has to be adhered by. This involves matters to do with insider trading and other requirements on proper conduct in the market.
Here in this paper, professionals are presented in the context of their contribution to share transfer.
Managers such as Company Secretaries, Chartered Accountants or legal consultants are very important since they make sure that the process of transfer of shares is effected in the shortest time possible but at the same time satisfying all the legal requirements as set by the law. For instance, CS Priyam Gupta assists in the formalities when there is transfer of shares, to ensure that the documents used are correctly stamped and more significantly legal compliances are met.
Conclusion
Again, share transfer is a prominent issue in the corporate context with reference to altering the ownership and contributing to movement of capitals in the market. Concerning the legal peculiarities, essential procedures, and the most important points to consider, the shareholders and the companies will successfully complete and carry out the transfer activity. Even higher levels of efficiency and legal compliance of the share sales processes can be reached considering the professionals such as CS Priyam Gupta.