Share Transfer Procedure in India | Step-by-Step Guide

What is a share transfer? 

A share transfer is the voluntary passing of ownership rights in company shares from one person (transferor) to another (transferee). It differs from transmission, which occurs by operation of law such as in the case of a shareholder's death. 

In essence, a share transfer represents a deliberate change in a company’s ownership structure, where the rights attached to the shares, including voting power, dividends, and claim on assets, move to the new holder. 

For private companies, transfers are commonly restricted by the Articles of Association (AoA) or shareholders’ agreements that set out Right of First Refusal (ROFR) or pre-emption, ensuring that ownership remains within a defined group of shareholders unless specific approvals are obtained.

Procedure for transfer of shares under the Companies Act, 2013

1. Review the articles of association (AoA) and shareholders’ agreement

Before beginning the transfer process, review the company’s Articles of Association (AoA) and any shareholders’ agreement to identify restrictions or special procedures. Pay attention to:

• Pre-emption or Right of First Refusal (ROFR) clauses, which may require offering shares to existing shareholders first.
• Approval authority, such as whether the board or shareholders must approve the transfer.
• Special classes of shares or conditions that may restrict transferability.

If the AoA includes a ROFR clause, follow its notice procedure carefully. Most companies specify a response window of 15 to 30 days for existing shareholders to confirm their decision.

2. Offer shares to existing shareholders (right of first refusal)

If the AoA requires a ROFR clause, the transferor must first offer the shares to existing shareholders.

• Send a written offer notice stating the number of shares, proposed price, and the deadline for acceptance.
• Use registered post or a dated email to maintain proof of delivery.
• If existing shareholders do not accept the offer within the specified period, or explicitly decline, the shares can then be offered to an external transferee.

3. Execute the instrument of transfer (Form SH-4)

Once the transferee is identified, both parties must execute Form SH-4, the prescribed instrument of transfer under Section 56 of the Companies Act, 2013.

Key requirements:

a. The form must be duly stamped either before or at the time of signing. Adhesive share transfer stamps may be used where permitted.

b. The form must include:

• Full name, address, and occupation (if any) of both transferor and transferee
• Folio number, certificate number, and distinctive numbers of the shares
• Number of shares, nominal value, and consideration paid
• Date of execution and signatures of both transferor and transferee
• Signature, name, and address of a witness

c. All entries should be accurate, legible, and consistent with company records.

4. Pay stamp duty and validate the instrument

Stamp duty is payable on share transfers made in physical form. 

Important points:

• Use the correct value of share transfer stamps and cancel them by drawing lines across the stamps so they cannot be reused.
• If there is insufficient space on Form SH-4, affix stamps on a separate sheet attached to the form with a cross-reference noted.
• Stamp duty is not applicable on transfers in dematerialised (demat) form.
• Since some states have their own stamp duty notifications, verify the applicable rate in the relevant state before execution.

5. Submit documents to the company

After execution, submit the following documents to the company’s registered office:

• Duly filled and stamped Form SH-4, signed by both parties and witnessed
• Original share certificate or letter of allotment, if no certificate exists
• PAN card or ID proof of the transferee for KYC verification
• Proof of consideration, such as a bank transfer or payment receipt, if applicable
• No objection certificate (NOC) from other shareholders, if required under the AoA

The instrument of transfer must be delivered to the company within 60 days from the date of execution.

6. Board review and approval

Once the company receives the transfer documents, the board of directors or an authorised committee will review the application.

• The board checks whether the transfer complies with the AoA and whether all required documents have been submitted.
• A board resolution is passed either approving the transfer or recording valid reasons for refusal.
• Upon approval, the company updates its Register of Members and issues a new share certificate to the transferee.
• The company must issue the new share certificate within one month of registering the transfer.

7. Handle late submission or lost transfer deed

If Form SH-4 is not delivered to the company within 60 days of execution or if the document is lost, the board may still register the transfer under certain conditions.

• The company can request an indemnity bond from the transferee to protect against future claims.
• A registered notice should be sent to the transferor, allowing time to raise any objection.
• If no objection is received within the specified period, the transfer may be approved after obtaining the indemnity bond.

This process is supported by the provision to Section 56(1) of the Companies Act, 2013, which allows the board to register delayed or missing transfer instruments on terms it deems appropriate.

Special cases in share transfer

Transfer of partly-paid shares

If the transferor applies to transfer partly-paid shares, the company must send a notice in Form SH-5 to the transferee before registering the transfer.

• The notice informs the transferee about the unpaid amount on the shares.
• The transferee must provide a written no-objection within two weeks of receiving the notice.
• The transfer can only be registered once this no-objection is received, unless the transferee himself lodges the transfer, in which case the notice is not required.

This requirement ensures that the new shareholder accepts liability for any unpaid amount on the shares.

Gift of shares

A transfer of shares by way of gift is legally valid even though no consideration is involved. However, Form SH-4 must still be used as the instrument of transfer.

• The consideration amount should be shown as “Nil.”
• Attach a gift deed (optional but recommended) stating that the transfer is made voluntarily and without consideration.
• Some state stamp authorities may still require a nominal stamp duty, even on gifts.
• Gifts between relatives may attract different stamp or tax treatment under state or income tax laws, so it is advisable to confirm the local requirements before execution.

Transmission of shares on death or inheritance

Transmission occurs when ownership of shares passes automatically by operation of law, such as on death, insolvency, or inheritance. It does not involve a voluntary act by the shareholder and therefore does not require Form SH-4.

To process a transmission, the legal heirs or nominees must submit the following to the company:

• Death certificate of the shareholder
• Succession certificate, probate, or legal heir certificate (as applicable)
• KYC documents of the claimant (PAN, ID proof, address proof)
• Share certificate in original

Once verified, the company records the transmission in the Register of Members and issues a new share certificate in the heir’s or nominee’s name.

Transfer of shares in dematerialised (demat) form

For dematerialised shares, transfers are handled electronically through the shareholder’s Depository Participant (DP) and not through Form SH-4.

• The transferor must submit a Transfer Instruction Slip (TIS) or electronic instruction to the DP.
• The depository (NSDL or CDSL) processes the transfer and updates the ownership in the company’s records.
• Stamp duty is generally not applicable to demat transfers since they occur electronically and are not executed through a physical instrument.

This process ensures faster and more secure transfers compared to physical share certificates.

Share transfers involving NRIs or foreign entities (resident ↔ non-resident)

Transfers between residents and non-residents are governed by the Foreign Exchange Management Act (FEMA), 1999 and the Foreign Direct Investment (FDI) Policy. These transactions require additional compliance with Reserve Bank of India (RBI) regulations.

Key requirements:

a. Valuation

• The transfer price must be based on Fair Market Value (FMV) as certified by a Chartered Accountant, SEBI-registered merchant banker, or cost accountant.
• Valuation ensures the transaction is at arm’s length and complies with FDI pricing guidelines.

b. Regulatory filing (Form FC-TRS)

• When shares are transferred between a resident and a non-resident (in either direction), Form FC-TRS must be filed on the RBI’s FIRMS portal within 60 days of the transfer.
• The filing must include the valuation report, share transfer details, and KYC of both parties.

c. Sectoral caps and approval route

• Confirm whether the company’s sector falls under the automatic route (no prior approval required) or the government approval route (prior approval required).
• Verify compliance with applicable FDI limits or caps for that sector.
  

d. Stamp duty and taxation

• Stamp duty is applicable at the standard rate (0.25% of consideration) even for cross-border transfers.
• Non-resident transfers may also attract capital gains tax and withholding tax (TDS) obligations, depending on the nature of the transaction.

Proper compliance under both the Companies Act and FEMA is essential to avoid penalties or invalidation of the transfer.

Can a company refuse to register a share transfer?

A company can refuse to register a share transfer only on specific grounds permitted by law or mentioned in its Articles of Association (AoA). Common reasons include:

• The transfer does not comply with pre-emption or right of first refusal provisions in the AoA.
• There is a company lien on the shares.
• The transfer deed (Form SH-4) or supporting documents are incomplete, defective, or incorrectly stamped.
• The instrument was lodged after the 60-day limit without sufficient cause or indemnity.

If the company refuses to register the transfer, it must communicate the reasons for refusal within 30 days of the date on which the transfer was lodged (as per Section 58 of the Companies Act, 2013).

What to do if a share transfer is refused?

1. Request written reasons

• Send a formal letter or email asking the company to provide its reasons for refusal in writing.
• Maintain proof of this communication (registered post receipt or email record).
  

2. File an appeal with the Tribunal (NCLT)

If the company does not provide valid reasons or fails to respond, you can file an appeal with the National Company Law Tribunal (NCLT) within the statutory timelines:

• 30 days from the date of notice of refusal, or
• 60 days from the date the transfer was lodged, if no response was received.
• Attach copies of Form SH-4, proof of delivery, the AoA excerpt, and correspondence with the company.
  

3. Seek interim relief if required

In urgent situations (for example, where the refusal affects voting rights or exit transactions), you can request the NCLT for interim relief while the matter is being heard.

Penalties for non-compliance with the share transfer procedure

Failure to comply with the provisions relating to share transfers attracts penalties under Section 56(6) of the Companies Act, 2013.

• The company shall be punishable with a fine not less than ₹25,000 and up to ₹5,00,000.
• Every officer in default shall be punishable with a fine not less than ₹10,000 and up to ₹1,00,000.

Frequently Asked Questions (FAQs)

1. How do I transfer ownership of shares to another person?

Complete Form SH-4 signed by transferor and transferee, pay required stamp duty, submit the SH-4 with the original share certificate and supporting KYC to the company, obtain board approval and have the company register the transferee and issue a new share certificate.

2. How many days are required for share transfer?

The instrument of transfer should be delivered to the company within 60 days of execution. After registration of the transfer, the company should issue the new share certificate within 1 month. Partly-paid transfers require a 2-week no-objection notice to the transferee.

3. Can shares be transferred from one person to another?

Yes. Shares are transferable subject to the AoA and applicable law. Private companies commonly have pre-emptive rights like ROFR or approval requirements; public companies generally allow freer transfers.

4. What is the stamp duty for share transfer?

Stamp duty on physical share transfers is generally 0.25% of the consideration (25 paise per ₹100). Demat transfers usually do not require stamp duty. Always confirm state stamp law variations.