Company Share Transfer in India — Form SH-4 and Board Procedure
A share transfer moves existing shares from one holder to another. Nothing new is created, no money comes into the company, and the paid-up capital does not change — only the name in the register of members changes. That is what separates a transfer from a fresh allotment, and it is the distinction that decides which documents, which stamp duty and which filings apply.
For shares held in physical form the instrument is Form SH-4, prescribed under Section 56 of the Companies Act, 2013 read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014. It must be executed by both the transferor and the transferee, properly stamped and dated, and delivered to the company together with the share certificate within 60 days of execution. The board then registers the transfer and the company delivers the certificate to the transferee within one month of receiving the instrument.
This guide covers the pre-emption rights in your articles that most transfers trip over, the SH-4 mechanics and the uniform 0.015 per cent stamp duty, the board process, valuation and tax exposure, the FEMA reporting where a non-resident is on either side, how transmission on death differs from transfer, and why the dematerialisation mandate is closing the physical route for many private companies.
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What is a share transfer in a private limited company?
Shares are movable property under Section 44 of the Companies Act, transferable in the manner provided by the company’s articles. A transfer is a private transaction between two parties that the company then registers — the company is not a party to the sale, but it is the gatekeeper, because the transferee becomes a legal member only when their name is entered in the register of members.
A private limited company, by the definition in Section 2(68), restricts the right to transfer its shares. That restriction is what makes it private. But a restriction is not a prohibition: the articles may impose conditions, a right of first refusal or a board approval requirement, and they cannot impose an absolute ban on transferability.
There is no MCA form for a share transfer. Unlike an allotment, which needs a return of allotment, a transfer is recorded internally and then disclosed in the shareholding tables of the annual return. That absence of a filing is precisely why transfer records are so often incomplete when diligence arrives.
When is a share transfer used instead of a fresh allotment?
| Share transfer | Fresh allotment | |
|---|---|---|
| What happens | Existing shares change hands | New shares are created and issued |
| Who receives the money | The selling shareholder | The company |
| Effect on paid-up capital | None | Paid-up capital increases |
| Effect on other shareholders | Their holding is unchanged in number, and their percentage is unchanged | They are diluted |
| Authorised capital headroom | Not consumed | Consumed — may need an authorised capital increase first |
| Instrument | Form SH-4 transfer deed | Offer letter, allotment resolution, share certificate |
| Stamp duty | 0.015% of consideration or fair value, whichever is higher | Stamp duty on the share certificate, at state rates |
| MCA filing | None — disclosed in the annual return | Return of allotment in PAS-3 |
Use a transfer when an existing shareholder is exiting, when founders are rebalancing between themselves, when a departing employee’s shares are being bought back by a promoter, or when an investor is buying out an earlier investor in a secondary. Use an allotment when the company itself needs the money — a priced round, a rights issue, a bonus issue, or conversion of an instrument.
Founders frequently describe both as "giving shares to the new partner". The two routes have materially different stamp duty, tax and filing consequences, so settle which one you are doing before drafting anything.
What do the articles say about transferring shares?
This is step zero and it is the step skipped most often. Almost every set of articles for a private company, and almost every shareholders’ agreement sitting behind them, contains a pre-emption or right of first refusal clause. Typically the selling shareholder must first offer the shares to existing members, at a stated price or a price determined by a stated mechanism, and may sell to an outsider only if the offer is not taken up within a stated period.
- 1.Read the transfer article and the shareholders’ agreement together before anyone signs
- 2.Serve the transfer notice on the company or the members in the form the articles require
- 3.Allow the full offer period to run before dealing with an outside buyer
- 4.Follow the price mechanism in the articles rather than the price the parties have agreed, where the two differ
- 5.Obtain board approval where the articles make it a condition
- 6.Check any lock-in, drag-along, tag-along or promoter-consent clause that may be triggered
- 7.Document each step — the notice, the lapse of the offer period, and the approvals
Skipping the offer to existing members is the most common ground on which a completed transfer is later challenged by a shareholder who says they were entitled to buy. Where the articles are getting in the way of a legitimate transaction, the answer is to amend them properly — see AOA amendment — not to transfer around them.
What is Form SH-4 and how is it executed?
SH-4 is the prescribed instrument of transfer. It records the company name, the class and number of shares, the distinctive numbers of the certificates, the consideration, and the full particulars of both the transferor and the transferee including name, address and occupation. Both parties sign it, and the execution is witnessed.
- SH-4 executed by or on behalf of both transferor and transferee, and dated
- Share transfer stamps affixed or franked for the correct duty, cancelled on execution
- Original share certificate covering the shares being transferred, or the letter of allotment if no certificate was issued
- PAN of both parties
- Board resolutions where either party is a body corporate
- Share purchase or share transfer agreement, where the parties have one
- Valuation report, where the price needs supporting for tax or FEMA purposes
- Transfer notice and evidence that the pre-emption process in the articles was followed
- No-objection or consent from other shareholders where the articles require it
Two mechanical points matter. The date of execution starts the 60-day clock for delivery to the company. And an unstamped or under-stamped instrument is not a valid instrument — the board cannot act on it, so getting the duty right is not a formality that can be tidied up later.
How much stamp duty is payable on a share transfer?
Stamp duty on the transfer of shares is a central levy, not a state one. Rates on instruments such as share transfers are reserved to Parliament, and the governing provision is the share-transfer article in Schedule I to the Indian Stamp Act, 1899. Since the 2019 amendments took effect on 1 July 2020 the rate has been uniform at 0.015 per cent across India — the same in Maharashtra as in Tamil Nadu.
| Point | Position |
|---|---|
| Rate | 0.015% — uniform across India since 1 July 2020 |
| Base | The consideration, or the fair market value of the shares, whichever is higher |
| Physical transfer | Share transfer stamps affixed to or franked on the SH-4 and cancelled on execution |
| Demat transfer | Collected by the depository or clearing corporation during settlement and remitted to the state |
| Who bears it | Customarily the transferor, unless the parties agree otherwise |
| Consequence of under-stamping | The instrument is not valid and the board cannot register the transfer |
| Gift or nil-consideration transfer | Duty is still computed on fair value, because the base is the higher of consideration and value |
The rate above is the central rate as it currently stands and should be confirmed before execution, since the Stamp Act schedule can be amended. A gift of shares is the case people get wrong most often: because there is no consideration, they assume there is no duty, when in fact the value-based limb of the test applies.
What are the time limits in a share transfer?
| Step | Statutory window | Provision |
|---|---|---|
| Deliver the executed, stamped SH-4 with the certificate to the company | Within 60 days of execution | Section 56(1) |
| Company delivers the certificate to the transferee on a transfer | Within one month of receipt of the instrument | Section 56(4)(c) |
| Company delivers certificates on a fresh allotment | Within two months of allotment | Section 56(4)(b) |
| Company delivers certificates to subscribers to the memorandum | Within two months of incorporation | Section 56(4)(a) |
| Company sends notice of refusal to register a transfer | Within 30 days of the instrument being delivered | Section 58 |
| FC-TRS reporting where a non-resident is involved | Within 60 days of the transfer or of receipt or remittance of consideration, whichever is earlier | Non-Debt Instruments Rules |
Delivering the deed after 60 days does not automatically void the transaction, but it moves the decision into the board’s discretion and creates a documented default. Where the delay is material the practical route is a fresh instrument or an application for condonation, which is a much longer road than lodging on time.
How to transfer shares in a private limited company step by step?
- 1.Read the articles and the shareholders’ agreement, and run the pre-emption process they prescribe
- 2.Agree the price, and obtain a valuation where tax or FEMA pricing rules require one
- 3.Prepare and execute Form SH-4, signed by both parties and witnessed, with the date of execution recorded
- 4.Pay stamp duty by affixing or franking share transfer stamps for 0.015 per cent of the higher of consideration and fair value, and cancel them
- 5.Lodge the executed SH-4 with the original share certificate at the company, within 60 days of execution
- 6.Place the transfer before the board, which considers it against the articles and any refusal grounds
- 7.Pass the board resolution registering the transfer
- 8.Enter the transferee in the register of members and record the transfer in the register of transfers
- 9.Endorse the existing certificate in the transferee’s name or cancel it and issue a fresh certificate, within one month of lodging
- 10.Where a non-resident is on either side, file FC-TRS through the authorised dealer bank within the applicable window
- 11.Disclose the transfer in the shareholding and transfer tables of the next annual return
- 12.Hand the transferee a copy of the updated register extract and the certificate for their records
The transfer is legally complete at step eight, when the name goes into the register of members — not when the SH-4 is signed and not when the money changes hands.
Can the board refuse to register a share transfer?
A private company can refuse, but only on grounds its articles permit, and it must act within the statutory timeline. Section 58 requires the company to send notice of refusal, with the reasons, to both the transferor and the transferee within 30 days of the instrument being delivered.
A refusal has to be a proper exercise of a power the articles actually confer — not a convenient way of blocking a shareholder the board dislikes. Where a company refuses or simply fails to act, the aggrieved party may appeal to the Tribunal within the prescribed period, and the Tribunal can direct the company to register the transfer.
For a public company the position is different: shares are freely transferable, and a public company’s refusal has a much narrower basis. Where a transfer is being blocked or contested, take advice early — a legal consultation on the articles and the notice position is far cheaper than a Tribunal petition.
What are the tax implications of a share transfer?
A transfer is a sale for the seller and an acquisition for the buyer, and both sides can be taxed. The seller pays capital gains on the difference between the sale consideration and the cost of acquisition, with the rate depending on the holding period and the class of asset. For unlisted shares the long-term holding period and the applicable rate should be confirmed for the year of transfer, because these provisions have been amended repeatedly.
- Capital gains for the transferor, computed on the higher of the actual consideration and the prescribed fair market value where the anti-abuse provision applies
- Income in the hands of the transferee where shares are received for no consideration or below fair market value, outside the exempt categories such as specified relatives
- A registered valuer or prescribed valuation method may be needed to establish fair market value for both limbs
- Withholding obligations where the transferor is a non-resident
- Disclosure of the transaction in both parties’ income tax returns for the year
- Reporting of the changed shareholding pattern in the company’s own filings
Transfers at a nominal price between founders are the usual flashpoint. Pricing a transfer at face value when the company has raised money at a much higher valuation invites adjustment on both the seller and the buyer side. Model the tax before fixing the price — see business ITR filing and online CA consultation.
What applies when a non-resident buys or sells shares?
A transfer between a resident and a non-resident is a foreign exchange transaction as well as a company law one. It is reported in Form FC-TRS through the authorised dealer bank on the RBI’s reporting portal, within 60 days of the transfer or of the receipt or remittance of consideration, whichever is earlier. Note that the earlier of the two events starts the clock, which differs from the allotment reporting timeline.
- Pricing floor where a resident sells to a non-resident — the price must not be below fair value
- Pricing ceiling where a non-resident sells to a resident — the price must not exceed fair value
- Valuation on an internationally accepted methodology on an arm’s length basis, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant
- A valuation certificate that is not stale — commonly required to be no more than 90 days old at the transaction date
- Sectoral caps and entry conditions under the foreign investment framework for the company’s activity
- Supporting pack for the filing: SH-4, the transfer agreement, consent letters, pre and post shareholding patterns, remittance evidence and investor KYC
Late reporting is dealt with through a compounding process rather than a simple late fee, so these dates are worth diarising from the day the deal is agreed. See FDI filing with RBI for the reporting framework and FLA return filing for the annual obligation that follows once foreign holding exists.
How is transmission of shares different from transfer?
Transmission is the passing of shares by operation of law — on the death of a member, or on insolvency. There is no buyer and seller, so there is no SH-4, no consideration and no stamp duty on a transfer instrument.
| Transfer | Transmission | |
|---|---|---|
| Trigger | A voluntary transaction between two parties | Death or insolvency of a member |
| Instrument | Form SH-4, executed by both parties | Application by the legal representative, with title documents |
| Documents | Transfer deed, certificate, consideration evidence | Death certificate, succession certificate, probate or legal heir evidence, nomination where registered |
| Stamp duty | 0.015% of the higher of consideration and value | No transfer stamp duty |
| Company timeline for the certificate | Within one month of receiving the instrument | Within one month of the intimation of transmission |
| Articles | Pre-emption and board approval clauses generally apply | Articles usually have a separate transmission clause |
A registered nomination materially simplifies transmission, and it is one of the cheapest things a shareholder can put in place. Where there is no nomination and no will, the family typically needs succession documentation before the company can act, which can take months.
How does dematerialisation change the transfer process?
Where shares are held in dematerialised form there is no SH-4 at all. The transfer is executed through the depository system using a delivery instruction from the transferor’s demat account, and the stamp duty is collected by the depository or clearing corporation during settlement rather than by affixing stamps.
This matters urgently for private companies, because Rule 9B requires every private company that is not a small company to issue securities only in dematerialised form and to facilitate demat of existing holdings. Once a company is inside that net, a shareholder holding a physical certificate cannot transfer those shares at all until they are dematerialised, and the company is also restricted from further issues and buy-backs while non-compliant.
If a transfer is on the horizon and you are not sure whether the mandate applies to you, check that first — see dematerialisation of shares. Obtaining an ISIN and getting shareholders into demat accounts takes weeks, not days, and a deal timetable rarely accommodates it.
What is the penalty for defaults in a share transfer?
Section 56(6) provides the penalty for defaults in complying with the transfer and certificate provisions, falling on the company and on every officer in default. The amounts have been amended in the course of the decriminalisation exercise, and commentary and older ROC orders still quote the earlier fine range of ₹25,000 to ₹5,00,000 on the company and ₹10,000 to ₹1,00,000 on each officer, while the current provision is commonly cited as a fixed penalty. Confirm the operative text for the period of your default rather than relying on a secondary source.
- Failure to register a validly lodged transfer
- Failure to deliver the share certificate within one month of receiving the instrument
- Failure to send a notice of refusal with reasons within 30 days
- Registering a transfer on an unstamped or improperly executed instrument
- Register of members not updated, or maintained inconsistently with the certificates issued
- Transfers recorded in the books but never reflected in the annual return
Late or non-issue of the certificate after a transfer is one of the most frequent findings in ROC adjudication against private companies, precisely because there is no MCA filing to force the discipline. A simple rule closes the gap: the certificate is issued in the same board meeting cycle in which the transfer is approved.
What records must the company keep after a transfer?
- 1.The original executed and stamped SH-4, retained by the company
- 2.The cancelled old share certificate, where a fresh one was issued
- 3.Register of members, updated with the transferee’s details and the date of entry
- 4.Register of share transfers, with the distinctive numbers of the shares transferred
- 5.Board minutes recording approval of the transfer
- 6.The transfer notice and pre-emption correspondence, evidencing compliance with the articles
- 7.Valuation report and the FC-TRS acknowledgement, where applicable
- 8.An updated cap table reconciled to the register of members, not maintained separately from it
The last point is where most cap tables go wrong. A spreadsheet that has drifted from the register of members is not evidence of anything, and reconciling years of undocumented transfers during a funding round is one of the more expensive clean-up exercises we are asked to do.
Why choose Arjun Filings for company share transfer?
Arjun Filings runs company share transfer as a checklist-first engagement: a qualified CA or CS scopes the work, tells you exactly which documents are needed, and reviews every form before it is signed and submitted. You get a named specialist, a status update at each stage, and a compliance calendar for whatever comes next.
- Specialist support for company share transfer
- Due-date calendar and penalty awareness
- Form review before DSC signing
- Status updates until acknowledgement