Step 1: Review Articles of Association (AOA)
Before initiating a share transfer, the company must examine the AOA to understand:
- Transfer restrictions
- Pre-emption rights
- Approval requirements
- Offer procedures for existing shareholders
The AOA acts as the primary rulebook for transfer of shares.
Step 2: Obtain Request Letter from Transferor
The shareholder intending to transfer shares must submit a written request to the company.
The request must include:
- Name of transferor & transferee
- Number of shares to be transferred
- Share certificate details
This formally initiates the process.
Step 3: Issue a Notice to Existing Shareholders (Right of First Refusal)
As per most AOA rules, existing shareholders must be offered the shares first.
If they decline or do not respond within the specified time, the shares can be transferred to an outsider.
Step 4: Execute Share Transfer Deed (Form SH-4)
The transfer deed must be filled and signed by both the transferor and transferee.
Key requirements of Form SH-4:
- Share certificate details
- Consideration amount
- Properly stamped deed
- Signatures & witness details
Stamp Duty
State-wise stamp duty applies — usually 0.25% of the share value.
Step 5: Submit Share Certificate & SH-4 to the Company
The transferor must submit:
- Original share certificate
- Duly executed SH-4 share transfer form
- Proof of stamp duty payment
The company verifies the documents before approval.
Step 6: Board Meeting for Approval of Share Transfer
The Board of Directors must approve the share transfer.
Action Points:
- Review Form SH-4
- Verify stamp duty
- Check compliance with AOA
- Approve or reject the transfer
Once approved, the transfer becomes legally effective.
Step 7: Update Register of Members (Form MGT-1)
After approval, the company must update:
- Register of Members
- Share ledger
- Certificate records
This step is crucial to reflect accurate ownership details.
Step 8: Issue New Share Certificate to Transferee
Within 1 month of transfer approval, the company must:
- Cancel the old certificate
- Issue a new certificate to the transferee
- Record certificate number & distinctive numbers
This completes the transfer process.
Documents Required for Share Transfer
- Request letter for transfer
- Form SH-4 (Share Transfer Deed)
- Original share certificate
- Proof of stamp duty payment
- PAN & KYC of transferee
- Board resolution approving transfer
- Updated Register of Members
Legal Timelines You Must Follow
| Requirement | Timeline |
|---|---|
| Execution of SH-4 | Within 60 days of share transfer signing |
| Board approval | Within 30 days of receipt of documents |
| Issuance of new share certificate | Within 1 month of board approval |
| Stamp duty payment | As per state laws |
Common Mistakes to Avoid
❌ Not checking AOA restrictions
❌ Incorrect or unstamped SH-4
❌ Missing witness signature
❌ Failure to update Members Register
❌ Delayed issuance of new share certificate
SavingMantra Tip: Always verify stamp duty and ensure proper documentation to avoid MCA scrutiny.
Benefits of Proper Share Transfer Compliance
✔ Legally secure ownership transfer
✔ Clear rights and responsibilities
✔ MCA-compliant records
✔ Avoid disputes among shareholders
✔ Ensures transparency and governance
Conclusion
Transfer of shares is a structured compliance process involving approvals, valid documentation, stamping, and timely issuance of certificates.
Following the above step-by-step process ensures transparency, legality, and smooth transition of ownership in a private limited company.
SavingMantra helps companies with:
✔ SH-4 drafting
✔ Stamp duty guidance
✔ Share certificate issue
✔ Register of Members update
✔ Board resolution preparation
The information provided in this blog is for general informational and educational purposes only and should not be construed as legal, tax, or professional advice. While every effort has been made to ensure accuracy and compliance with the applicable provisions of the Companies Act, 2013 and related rules, laws and regulations may change over time and interpretations may vary based on specific facts and circumstances.
All services are subject to applicable laws, rules, and government approvals prevailing at the time of execution.