Transfer of Shares - Finance Ppl

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Transfer of Shares

Provisions under the Act
  1. Section 56:- Procedure for transfer of securities.

    2. It mandates that for transfer of securities to be complete, it has to be executed in approrpriate Form SH-4 (share transfer form) duly signed by both transferor and tranferee and has to be submitted to the company along with share certificate within 60 days of execution.
    The company must register the transfer and issue share certificate within 1 month of receiving the form/instrument.

    Partly paid shares: If the shares are partly paid and if transferor applies alone, company must notify the transferee. The transfer shall be registered only if transferee does not raise any objection within 2 weeks of the notice.

  2. Transmission of shares:

    3. Transmission refers to transfer of ownership of shares due to involuntary event (e.g., inheritance, insolvency, bankruptcy etc)and is allowed by operation of law, in which case no need for transfer deed, the legal representative has to provide the company with necessary documents like succession certificate, letter of administration etc
    The legal representative can even transfer the shares directly to a third party without registering shares in his/her own name first.

  3. Section 58: Refusal to register transfer

    4. Section deals with scenario under which the company can refuse to register the transfer.

    1. Private Companies: May restrict share transfers through their Articles of Association. It is to be noted that the transferability of shares is 'restricted', not 'prohibited'. Restricted means the AoA places certain conditions or limitations on how shares can be transferred. For example, a shareholder may need to offer the shares to existing members before selling them to outsiders (called a right of first refusal). Prohibited would mean that no transfer is allowed at all, which is not the legal intent.
    2. Public Companies: Shares are freely transferable, unless restricted by law. The company may refuse registration if it violates any law or the transferor is not the rightful owner.
  4. Section 58(2):- Arrangement between two shareholders

    5. Povides that any contract/arrangement between two shareholders regarding the transfer of securities, are legally enforceable eg right of first refusal, tag-along rights are enforceable.

    Latest Amendments
  5. Mandatory Dematerialization for Private Companies

    6. As per the Companies (Prospectus and Allotment of Securities) Second Amendment Rules 2023: All private companies (except small and government companies) must dematerialize their securities and share transfers must be done only in demat form.

  6. Re-lodgment Window for Physical Share Transfers

    7. SEBI Notification dated July 2025: Investors who missed the deadline (March 2021) to re-lodge physical share transfer deeds now have a special window From 7th July 2025 to 6th January 2026. The notification applies to deeds lodged before 1st April 2019 but rejected due to documentation issues. These transfers will be processed only in demat mode.

  7. Designation of Responsible Person for Beneficial Ownership

    8. Under the Companies (Management and Administration) Second Amendment Rules 2023, Every company must designate a specific individual for reporting beneficial ownership information to the ROC. The company may designate the following as designated persons: a) Company Secretary or b) Key managerial personnel or c) Any of the directors, in case there is no CS or KMP.