Transfer Deed Must Be Registered
In the Companies act 1956, transfer of shares is outlined in section 108 of the act. Section 108 clearly points out that registration of transfer of shares is possible only if a proper transfer deed in form 7B/Share transfer deed (as given in the Companies [central government’s] General Rules and Forms, 1956) has been duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee and has been delivered to the company along with a certificate relating to the shares, or if such certificate is not present, then a letter of allotment of the shares should suffice.
The latest Companies Act 2013,(18 of 2013) talks about transfer of shares in Section 56, A company shall not register a transfer of securities of the company, interest of its member in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities.
Shares can be transferred in the name of minor. In such case the transfer deed is required to be signed by the natural legal guardian on behalf of the minor.
In the case of Hindu Undivided Family (HUF), shares can be transferred in the name of the Karta of HUF and in the case of a Firm; shares can be transferred in the name of the Partner of the firm.
Validity of unstamped deeds
Both sections 108(1956) and 56 (2013) of the Companies act, requires that where share transfer form is delivered to the Board it should be duly stamped, with adequate value, and dated and cancelled as per section 12 of the Indian Stamp Act.
Transfer procedure under the depositories system
Section 108(3) of the Companies act, 1956, provides that the provisions of section 108 shall not apply to transfer of securities under the depositories system.
Whereas in Section 56(4) of the Companies act, 2013, provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities. Section 56(7) states that where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section 447.
Validity of transfer deed
In the case of listed company (a company listed in a recognized stock exchange), at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) of section 108(1A) or within twelve months (1year) from the date of such presentation, whichever is later. In any other case, within two months from the date of such presentation.
Under section 56 (4B) of the companies act , 2013 Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted within a period of two months from the date of allotment, in the case of any allotment of any of its shares.
The transfer deed is valid for a period of one year from the date of presentation date or till the next book closure date of the Company, whichever is later. In case the transfer deed has expired, the buyer may make an application in Form 7C to the Registrar of Companies requesting for the same to be revalidated.
Time limit for issue of certificate on transfer
Within a period of two months in case of unlisted companies, and in the case of a listed company, the listing agreement requires that the registration of transfers will be made within 30 days of receipt of the transfer deeds.
Stamp duty for Transfer of shares
The stamp duty has been reduced to 25 Paise for every Rs100 w.e.f. 1-3-2004, vide notification No. S.O. 130(E) dated 28-1-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi. Earlier, upto 29-2-04, it was 50 Ps per Rs 100 or part thereof, vide notification No. SO 198(E) dated 16.3.1976]. There is no stamp duty on transfer of shares or debentures in a depository scheme.
Only Special Adhesive stamps bearing the word “share transfer” shall be used for stamping for share transfers as per section 17 of the Stamp act in India.
Determination of valuation of shares for purpose of affixing stamps on the transfer deed
In the case of transfer of shares of a company it is the seller who is responsible for payment of stamp duty (Union of India vs. Kulu ValleyTransport Ltd) . It was also held in this case in case shares are not quoted, the value of the shares for the purpose of stamp means the price that the shares would fetch at the time of transfer or consideration agreed, whichever is higher. Section 21 of the Indian Stamp Act states that where an instrument is chargeable with ad valorem duty in respect of any stock or of any marketable or other security, such duty must be calculated on the value of such stock or security according to the average price of the value thereof on the date of instrument.
Transfer of shares in electronic form
Under section 8A of the Indian stamp act, securities issued in electronic form need not be stamped provided the issuer pays stamp duty on the total amount of securities issued. Also transfer of registered ownership of share from a person to a depository or from a depository to a beneficial owner shall not be liable to any stamp duty as required under article 62 of Schedule I of the act. No stamp duty is payable on transfer of shares in demat mode.
Procedure for transfer of shares of private company
Under Section 3(1)(iii)(a) of the Companies Act, 1956, provides that the Articles of association of a private company shall restrict the right to transfer the company’s shares. Generally articles of association contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares
(i) Transferor gives a notice in writing for his intention to transfer his share to the company.
(ii) The company in turn will notify to other members as regards the availability of shares and the price of the same.
(iii) Such price of the shares is generally determined by the directors or the auditors of the company.
(iv)The company will also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
The company can also transfer shares to an outsider if no members of the company come forward to purchase it.
Transfer of shares in a public company
Section 111A(2) of the Companies act ,1956 and 59 of the companies Act,2013 provides that the shares or debentures and any interest therein of a public company shall be freely transferable.
Transfer when complete
A transfer is complete as between the transferor and transferee when all the formalities such as execution of the transfer deed and handing over the share certificates are complete.