6 Things You Should Know Before Transferring Equity Shares

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Transferring Equity Shares

Issuing equity shares allows companies to raise capital for their business needs. It is one of the best means to pool money from investors and use it for different business purposes. The shareholder, on the other hand, is entitled to receive dividends from the company’s profit and also gets some ownership right of the organization. Now since the equity shares meaning defines it to be a liquid asset, it can be bought, sold, and transferred easily.

Transferring equity shares meaning the willful transfer of the rights, ownership as well as duties of the existing shareholder back to the company. If the shareholder, who does not wish to be a part of the company/organization anymore, can transfer equity shares like any other moveable asset provided that there are no rules under the articles of the company defining equity shares meaning that restricts the transfer. Having said this, it is important to know a few things before transferring equity shares. Let us have a look at the same.

6 Things to Keep in Mind Before Transferring Equity Shares

If you have decided to transfer your equity shares, you must know some specific details involved in the transfer in order to make the transfer as smooth as possible and ensure that you are getting compensated properly. This also constitutes the part of equity shares meaning.

Parties Involved

It is not only the shareholder and the company but there are other parties as well who are involved in the transfer of equity shares. The parties involved in the transfer are as follows:

Hence it is important to ensure the presence of all the aforementioned parties so that all the involved formalities are completed without any hassle.

Documents Required to Transfer Equity Shares

Since the transfer of equity shares meaning also brings the transfer of certain legal and monetary rights, the process involves specified formalities and paperwork. Here is the set of documents you need to keep handy in the process of transferring equity shares:

  • Share certificates
  • Dissent letter of the existing shareholder
  • Notice sent by the Transferor of the company
  • Board Resolution for the consideration of notice sent by the Transferor
  • Share transfer deep with stamp duty paid (25 paise for every Rs 100)
  • Letter of offer given to existing shareholders by the company
  • Board Resolution passed for the registration of the transfer of shares

Make sure you possess all the necessary documents needed to transfer the equity shares.

In Case of No Share Certificate

Filing share certificates is necessary to initiate the transfer of equity shares. However, in case, the transferor does not possess share certificates, he/she is required to produce the Letter of Allotment to the company along with the instrument of transfer.

SH 4 Form (Share Transfer Deed)

A share transfer deed needs to be executed by the company in the form SH 4. This will be done by both the parties, i.e; transferor and transferee. The SH 4 forms must contain the below mentioned details:

  • The form must be duly stamped
  • It should be dated properly
  • Name, Father’s Name, Occupation, and Address of both the parties (Transferor and Transferee)
    Transferor and Transferee’s Folio number
  • Shares Certificates’ Number of the shares to be transferred
  • Nominal Value of the shares to be transferred
  • Distinctive number

Non-Compliance Penalty

If the company fails to comply with the prescribed rules and regulations or has violated any of the laid procedures, a fine not less than Rs 25,000 and up to Rs 5,00,000 will be imposed on the company. Also, every company’s officer who had/have been part of the default will have to pay a minimum penalty of Rs 10000, which can also be up to Rs 1,00,000.

Company’s Duty

  • When a share transfer application is received and approved, it is the duty of the company to notify its members of the shares’ availability and the price at which it is being offered.
  • The time limit within which the members need to submit their application of interest in buying the shares should also be clearly notified by the company.
  • In case no member is interested in buying the shares, the same will be offered to anyone outside the organization.
  • The price of the available shares is decided by the directors and auditors.

Transferring equity shares is possible and all the procedures are laid out. One needs to be aware of the rules and his rights in the transfer of shares. It is advisable to consult an expert in order to ensure that everything is done legally and any loophole is not being used against the shareholder. The above-mentioned points are some of the key things that should be kept in mind before transferring equity shares. There are other important factors as well which the shareholders should be aware of.