The share transfer form is a very important aspect for the private limited companies since the ownership of such companies is established by holding shares of the company. In order to attract the new investors or transfer the ownership of the enterprise, it is important to transfer the share of the company especially of the private limited company. Continue reading if you are interested to learn more about this topic and all the related details.
Restrictions of the Share Transfer in AOA
Generally, the private limited companies are viewed as a “closed corporation” with some members which is nearly similar to the Partnership Firms. Hence, in that light, it is possible to restrict the transfer of the shares of the company in terms of the AOA of the share transfer form, which stands for Articles of Association. This means that is important that the AOA of the company is reviewed before it can even begin the procedure of the share transfer.
There are two forms of restrictions placed on the right of the transfer of the shares. These are listed below.
- Rights of Pre-Emption: A shareholder cannot sell the shares outsiders without offering them to the existing members first. That is, if any shareholder is interested to sell all or whole of his shares, then he or she must offer the shares to other members of the private limited company. The Auditor or the Directors of the company will determine the value of the total share up for sale according to the regulations of the Articles of Association. If none of the current members buy the shares, only then the shareholder can sell the share to any outsider.
- Directors’ Power of Refusal: Keeping accordance with the articles of association, the directors have the power of refusal of any registration that can be required for the share transfer form.
Only the restrictions that are mentioned in the Articles of Association have legal consequences. If there is any mutual agreement that happened between the members of the private limited company, then it does not come under the legal parameters. Also, only the Articles of Association can decide the restrictions on the transfer of the shares. But it should be mentioned that there can be no absolute ban or prohibition on the transfer of the shares of the private limited company.
Initiation Process of the Share Transfer
In order to start the procedure of the share transfer, the following steps are to be followed.
Step 1: The Articles of Association or simply the AOA of the private limited company has to be reviewed and if there is any restrictions, then, those are to be addressed.
Step 2: A written notice containing the reason and intention behind the transfer of the share will have to be presented to the Director of the Company from the shareholder.
Step 3: Next the shareholder will have to put a value on the shares according to the share transfer form as per the Articles of Association which will be presented to the shareholders who belong to that company. Normally, The Auditor or the Directors of the company will determine the value of the total share up for sale according to the regulations of the Articles of Association).
Step 4: Finally, the private limited company has to share the following details with the other shareholders.
- Whether the shares are available
- When the deadline to buy those shares is
- What the price of the shares is
If any one or more of the existing members of the company want to buy the share, then he or she must be sold the share. No outsider can be allowed to buy that share in this case. But if no one buys the share from the existing members or some extra share remain, then, in that case, the shareholder can sell the shares to any outsider.
Process of the Share Transfer
To transfer the shares, follow the guideline given below.
Step 1: First you have to collect the share transfer form in the format as prescribed.
Step 2: Make sure that the form is signed properly by the one who is transferring and who is getting the transfer.
Step 3: Following the Stamp Act of India and the Stamp Duty Notification that is prevalent in the state, the shareholder has to stamp the form properly.
Step 4: A witness must be present who has to give his or her name, the signature and the address.
Step 5: Next, the allotment letter or the share certificate has to be attached with the form of the transfer and has to be delivered to the company
Step 6: After the company has reviewed and approved the certificate, a new certificate of the share will be issued in the transferee’s name.
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