Procedure To Transfer Shares In Private Limited Company

Transferring shares in a private limited company looks straightforward at first glance, but once you start the process you quickly realise why so many shareholders run into problems. Most private companies have strict transfer clauses in their Articles of Association, and these are not optional. Section 44 makes it clear that although shares are movable property, your right to transfer is always subject to the Articles. Things became even more complicated after the MCA introduced Rule 9B. As of the 2023 amendment, more than 1.2 lakh private companies fall under the upcoming demat compliance regime, which means traditional paper transfers using SH 4 are slowly disappearing. Add to this the uniform 0.015 percent stamp duty on off market transfers (effective nationwide after July 2020), and suddenly even a simple transfer requires attention to exact calculations and correct timelines. On the ground, professionals frequently report mistakes in Form SH 4, delays in Board approval, and disputes that escalate into NCLT appeals under Section 58 when a transfer is refused or not acted upon. Cross border transfers add another layer. FEMA rules require pricing compliance and filing Form FC TRS within 60 days, a step many first time investors miss.

What You Will Learn in This Blog:

• Snapshot Checklist (Before You Start)
• Legal Framework
• Step by Step Procedure (Two Paths)
• Documents Required for Transfer of Shares in a Private Limited Company
• Stamp Duty on Transfer of Shares of a Private Limited Company and Timeline

Mandatory Checklist Before Transferring Shares

Before you begin the transfer process, run through this quick checklist to avoid the most common delays and legal roadblocks:

1. Read Your Articles of Association and Shareholders Agreement
   The AoA and any SHA always come first. They may contain restrictions like Right of First Refusal, lock-in periods, or mandatory Board consent. These will override the general procedure and determine what steps you must follow.
2. Check Whether Rule 9B Applies to Your Company
   If your private limited company has crossed its demat compliance date under Rule 9B of the PAS Rules, all share transfers must be done only in dematerialised form. If Rule 9B has not triggered yet, physical transfers using Form SH-4 are still allowed.
3. Keep KYC and Share Certificates Ready
   Both transferor and transferee should have updated KYC documents such as PAN and address proof. For physical shares, the original share certificate is compulsory at the time of submitting the transfer instrument.
4. For Resident to Non-Resident Transfers, Check FEMA Compliance
   Cross-border transfers require checking pricing guidelines and filing Form FC-TRS on the FIRMS portal within 60 days. Without FEMA compliance, the transfer is considered invalid even if the company approves it.

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Legal Framework

Understanding the legal backbone of share transfers makes the entire process much easier. The Companies Act, allied Rules, stamp duty norms, and new demat requirements together decide how a private limited company must handle a transfer.

Section 44, Companies Act, 2013

Shares are treated as movable property, which means they can be freely transferred. However, this freedom is always subject to the Articles of Association, which act as the rulebook for share transfers in a private limited company. If the AoA imposes ROFR, lock-ins, or restrictions, those conditions must be followed first.

Section 56 and Rule 11 of the Share Capital and Debentures Rules

These provisions lay down the procedural backbone for physical transfers. A share transfer must be executed on properly stamped Form SH-4 and delivered to the company within 60 days of signing. The company then has to process the transfer and issue a new share certificate within 1 month of receiving a valid instrument.

Section 58

A private company may refuse to register a share transfer if its AoA permits such a refusal. But the company must communicate the refusal promptly. If the shareholder disagrees, they can appeal to the NCLT within 30 days of receiving the refusal, or within 60 days if the company remains silent after receiving SH-4.

Uniform Stamp Duty (effective 1 July 2020)

All off-market share transfers now attract a uniform stamp duty of 0.015 percent on the consideration amount (delivery basis). This duty is collected centrally, which avoids the earlier confusion of state-wise rates.

Rule 9B, PAS Rules (27 October 2023)

This rule brought a major shift for private companies. Once a private company no longer qualifies as a “small company” for a financial year, it must complete its demat compliance within 18 months from the end of that FY. After the company’s Rule 9B compliance date, all share issues and transfers must be in dematerialised form only, and shareholders must dematerialise their existing holdings before initiating any transfer.

Step-by-Step Procedure (Two Paths)

The actual process depends on whether your private limited company has crossed its Rule 9B demat compliance date. After that date, all transfers must happen only in dematerialised form. Until then, physical transfer using Form SH-4 is still legally valid. Here is how both paths work.

A) If Your Company Is Under Demat-Only (Rule 9B)

Use this path once your company’s Rule 9B compliance date has kicked in. From that date forward, physical share transfers are not allowed. Everything must flow through demat.

1. Pre-checks
   Review the AoA and any Shareholders Agreement for ROFR, lock-in, or requirements for Board consent. Even in demat mode, AoA restrictions continue to apply.
2. Open or Verify Demat Accounts
   Both the transferor and transferee must have active demat accounts with NSDL or CDSL. If an account is not yet opened, the process must be completed before initiating the transfer.
3. Execute Off-Market Transfer via DIS
   The transferor submits a Delivery Instruction Slip (DIS) to their Depository Participant for an off-market transfer. Stamp duty at 0.015 percent is automatically collected by the system based on the transaction details.
4. Company’s Internal Actions
   The company verifies the DP statement, updates the Register of Members, and issues the electronic holding to the transferee. No Form SH-4 is involved in demat transfers.
5. Timelines
   Although Section 56 applies to physical transfers, companies generally follow its 1-month completion principle as a good corporate governance practice. The company should update registers and reflect the new holding in its electronic records promptly.

B) If Physical Transfer Is Still Permitted (Pre-Rule 9B or Exempt Cases)

If your company has not yet reached its Rule 9B compliance date, or if your company falls under an exempt category, the classic SH-4 route continues to apply.

1. Board Strategy
   Per the AoA, the transfer proposal should be placed before the Board (or shareholders, if the AoA requires their approval). The company may circulate the transfer notice to existing shareholders if ROFR applies.
2. Fill and Execute Form SH-4
   Form SH-4 must be completed carefully, signed by both transferor and transferee, and witnessed. Stamp duty at 0.015 percent of the consideration must be affixed or paid digitally. The date on SH-4 is crucial for the 60-day submission timeline.
3. Attach Supporting Documents
   Include the original share certificate or allotment letter, along with self-attested PAN and address proofs. If the transferor or transferee is a company, attach their Board Resolution approving the transaction.
4. Deliver to the Company Within 60 Days
   SH-4 and documents must reach the company within 60 days of execution. A late submission may be rejected under Section 56.
5. Company Verification and Board Approval or Refusal
   The company checks the documents, applies AoA restrictions, and the Board decides whether to approve or refuse. If refusing, reasons must be recorded and communicated.
6. Post-Approval Steps (Within 1 Month)
   Once approved, the company cancels or endorses the old certificate, issues a new share certificate within 1 month, and updates the Register of Members to reflect the transferee as the new shareholder.

Documents Required for Transfer of Shares in a Private Limited Company

The exact documents depend on whether the transfer is through demat mode or physical SH-4 mode, but these are the standard sets you should keep ready to avoid delays:

1. For Both Demat and Physical Transfers

• PAN of transferor and transferee (self-attested)
• Address proof (Aadhar, Passport, Driving License, or Utility Bill)
• Shareholders’ Agreement (if applicable)
• Board Resolution (if transferor or transferee is a company)
• Any additional documents required under the AoA (such as ROFR waiver or consent letters)

2. Additional Documents for Demat Transfers (Rule 9B scenario)

• Active demat account details of both parties (NSDL/CDSL)
• Delivery Instruction Slip (DIS) submitted to the DP
• Client Master Report (CMR) if the company needs verification
• DP-generated confirmation of the off-market transfer

3. Additional Documents for Physical Transfers

• Duly filled and executed Form SH-4
• Original share certificate(s)
• Proof of stamp duty payment or adhesive stamps (0.015 percent)
• Witness ID proof (recommended, not mandatory)
• Allotment letter (if original certificate is not issued yet)

Having these documents prepared in advance ensures that the transfer is processed smoothly, without back-and-forth queries from the company or its secretarial team.

Stamp Duty on Transfer of Shares of a Private Limited Company and Timeline

Understanding both the stamp duty requirement and the statutory timelines is essential to ensure your share transfer is legally valid and processed without objections.

Stamp Duty on Share Transfer

All off-market transfers of private company shares attract uniform stamp duty of 0.015 percent of the consideration amount. This applies nationwide and covers both physical and demat transfers.

• In physical transfers, stamp duty must be paid or affixed on Form SH-4.
• In demat transfers, the duty is auto-collected by the depository system when the Delivery Instruction Slip (DIS) is processed.

Timelines You Must Follow

• Delivery of SH-4 to the company: Within 60 days from the date the transfer deed is executed. Missing this deadline allows the company to reject the transfer under Section 56.
• Company to issue the new share certificate: Within 1 month from the date the valid SH-4 (or demat confirmation) is received and the transfer is registered in the company’s records.

Demat Mandate for Private Companies (Rule 9B)
Once your private limited company crosses its Rule 9B compliance date, all share transfers must be made only in dematerialised form. Physical SH-4 transfers are no longer acceptable. Shareholders must dematerialise their existing holdings before initiating any fresh transfer.

Conclusion

The procedure to transfer shares in a private limited company may appear technical, but once you understand the role of the AoA, the timelines under Section 56, and the shift toward mandatory demat under Rule 9B, the process becomes far more manageable. Whether your company still permits physical SH-4 transfers or has moved entirely to demat, the key is to prepare the right documents, follow the approval pathway laid out in your governing documents, and meet the statutory deadlines. With the correct checks in place and a clear understanding of each step, you can complete a share transfer smoothly, legally, and without unnecessary delays. Talk to a Rest The Case expert CS/CA for a quick review of your transfer file.

Disclaimer: This article provides general information only. Share transfer rules may vary by company and law. Do not act solely on this content- seek Legal Professional.