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Wednesday, 17 February 2021

Find Out Step-by-step Guide About Transfer of Shares in India

All You Need to Know About Transfer of Shares in India

It is common for shareholders in small & private companies to often dilute or transfer their equity stake to another person. This usually happens when either the stakeholder is ill or he wants to transfer shares to a family member. This is when the transfer of shares takes place.

The Companies Act, 2013 specifies a proper procedure for the transfer of shares. It also prohibits any company to Register and Share Transfer Agent of its shares without the execution of the proper instrument and unless the requisite stamp duty is paid and details of the Transferee & Transferor are provided.

Here you can read about the detailed process along with compliance for the transfer of shares for private companies.

How Transfer of Share Works

To start with the transfer of shares, the respective party must first acquire the form SH-4 for Share Transfer Deed. The details of time, date, no. of shares, name of transferor & transferee, amount of consideration, address, occupation, distinctive no. of shares, etc. must be furnished in the form. The Share Transfer Deed or Instrument is then executed and stamped properly.

In the next step, both the share transferor and transferee are required to prepare their respective sale/purchase invoices and submit the same along with their share transfer application to the Board of Directors of the company.

The Board of Directors will then conduct a board meeting to decide on and approve/reject the registration of transfer of shares. If approved, requisite entries in registers and certificates will be made to complete the transfer.

Time Frame for Execution & Delivery of Share Transfer Instrument to Company

Section 59 of the Companies Act, 2013 specifies the time limit for the execution and delivery of the Share Transfer Instrument, along with share certificates for transfer, to the company as a period of 60 days from the date of execution. In short, the Deed must be submitted to the company within 60 days from the date it was executed.

What to do If The Instrument of Transfer is Lost Post-execution and Before Delivery to The Company?

In the case when the Instrument of transfer is lost after execution or could not be submitted to the company within 60 days, Section 56 of the Companies Act allows the company to register the transfer of shares on the grounds of indemnity on such terms as the board finds suitable.

However, if the instrument of transfer is not submitted to the Company because of the death of Subscriber, the company board is required to register the transfer and must transmit the said shares to the legal heir or nominee of the subscriber.

Stamp Duty Fee on Transfer of Shares

The stamp duty fee for the transfer of shares is fixed at 0.25% of the total consideration amount. The applicant must purchase the court fee stamp of the said amount and paste the same on his/her application. The fee is fixed irrespective of the state of the applicant/company.

Transfer of Partly Paid-up Shares

In case if a person wishes to transfer partly paid-up shares, the transferor himself/herself has to furnish an application with the company. The company will then send a notice to the transferee for acquiring a ‘No Objection Certificate’ to complete the transfer.

If the transferee sends his/her reply within 2 weeks of receipt of the notice and shows no objection to the transfer of shares, only then the company can process the application and approve the transfer.

Step-by-step Procedure for Transfer of Shares in Depository System

Here’s the procedure to request for transfer of shares by depository:

The transferor has to make a request and provide delivery instructions to the Depository Participant No. 1 (DP1) to transfer the shares as well as debit the transferor account against the shares from clearing member 1 pool account with DP1. Upon receiving this request, the clearing member-1 pool sends a receipt instruction to DP1, instructing it to accept the Share Transfer Agent in his/her account. Finally, the securities are transferred from the transferor account to the clearing member 1 pool account with DP1.
The clearing member 1 then instructs the Clearing Corporation (CC) to debit his Clearing Member 1 Pool account and credit the securities to his Clearing Member 1 Delivery account. The transfer of securities will take on the date of execution as mentioned in the instruction.
Until the settlement, the securities remain in the clearing member 1 delivery account. On the settlement day, the securities in the clearing member 1 delivery account are automatically transferred to the Clearing Corporation account.
Now, the securities automatically transfer from the Clearing Corporation account to the Clearing member 2 receipt account with DP2, with no instruction required to be set up.
After that, the securities are transferred from the receipt account of Clearing Member 2 to his/her pool account.
Clearing Member 2 then instructs Delivery Partner 2 to debit his pool account and credit the securities to the buying client account maintained with DP 2. The buyer at the same time gives a receipt instruction to DP 2 to accept securities in his account.
The securities are then transferred from the clearing member 2 pool account to the buyer’s account maintained with DP 2.

Note: No stamp duty is levied in case of transfer of shares in DEMAT form.

All You Need to Know About E-Form PAS-6 Filing FAQs

The PAS-6 form was notified by the Ministry of Corporate Affairs (MCA) on 15th July 2020. The due date for filing the PAS-6 form by companies governed by the Rule 9A of the Companies Rules, 2014 was 13th September 2020, however, the MCA has extended the due date till 31st December 2020.

Q.1 – What is Rule 9A?

The Ministry of Corporate Affairs through the notification released on 10th September 2018 introduced Rule 9A under Companies (Prospectus and Allotment of Securities), Rules, 2014. The said rule is concerned with the issue of securities in Demat form by Unlisted Public Limited Company in India and became effective from 02nd October 2018.

According to Rule 9A,

Every unlisted public company shall –

issue all future securities only in dematerialised form; and
Convert all its existing securities into Demat form

This shall be done according to the provisions and regulations of the Depository Act, 1996.

Q.2 – What is Dematerialization?

Dematerialization refers to the process of converting physical share certificates into electronic forms, which aims to enhance transparency, security, and corporate governance.

Q.3 – What Are The Various Features of Rule 9A?

Every unlisted public company is required to issue future securities only in Demat form and must also convert all its existing securities into Demat (with unique ISIN for each type of security).
Before the company can make an offer for the issue of securities, it must convert all securities of its promoters, directors, KMP in Demat form.
Every securities holder of such a company must get their securities converted into Demat form before they can transfer it to another person.
Submission of reconciliation of share capital audit report.
Security holders of the company shall file their grievances directly before the IEPF Authority.

The said rules of Rule 9A shall also be applicable to Deemed Public Companies, i.e. private companies which are subsidiaries of a public company. The rule, however, shall not apply to an unlisted public company which is either a Nidhi or a government company or a wholly-owned subsidiary.

Q.4 How to File PAS-6?

The PAS-6 form must be filed by every unlisted public company which is governed by Rule 9A. The form will be submitted to the Registrar of Companies along with such fees as provided in Companies (Registration Offices and Fees) Rules, 2014 and must be filed within 60 days from the completion of a half year. Did you want to find out about the best RTA Agent? if yes then you can choose our SAG RTA: A SEBI authorized Rajasthan's 1st Registrar and Share Transfer Agent Services provider company.

Any of the following persons are authorized to file PAS-6 on behalf of his/her company:

Director
Manger
Company Secretary
CEO
CFO

Q.5 What is PAS-6 Filing Frequency & Due Date?

An unlisted public company is required to file two PAS-6 forms in a year for the following category of securities:

Q.6 – How to Obtain ISIN?

Any eligible company can obtain ISIN by filing a request with the concerned authority. If a company fails to obtain ISIN, they will be liable to pay a penalty under Section 450 of Companies Act, 2013 (punishment where no specific penalty or punishment is provided).

Can a company still file PAS-6 if it has not dematerialized its shares by 31st March 2020?

Yes. In such a case the company must provide details of physical shares in the column that says “shares held in physical form”.

Know More Information About Preference Shares

Another name of preference share is known as preferred stock. These are the shares that are denoted to the company's stock on which the dividend is to be given to the shareholders prior to the allotment of the common stock dividends. But once the business gets bankrupt then Preferred Shareholders are liable to be paid prior to the ordinary shareholders from the fixed or variable assets of the organization.

The majority of the preferred shares have fixed dividends while the common stocks do not have. Also, the preferred shareholders do not have the right to vote. While the ordinary shareholders do have. Preference Shares lie beneath the 4 sections participating preferred stock, cumulative preferred stock, non-cumulative preferred stock, and convertible preferred stock.

A cumulative preferred stock consists of the procurement which proposes the company to pay all the dividends to their shareholders, it constitutes those who were not present before when the dividends can be taken from common shareholders. The type of payments can be given but it can not always be furnished when it is not filed.

Understanding Preference Shares

The dividends in installments are given to unpaid dividends and should legally move with the owner of stock during the furnishing of payment. The owner of this preferred stock shall be given an additional consideration that is interest.

The non-cumulative preferred stock will not deliver missing or delayed dividends. If the company assumes not to give any dividends in the particular year then the non-cumulative preferred stock owner will not have the right or power to avail that overlooked dividend in the future times.

The owners have the power to take the dividends relevant to the commonly recognized rate which they opted but this can be claimed when people own the preferred stocks also they shall be given an added dividend dependent on a predefined situation.

There is an option by which the preferred shareholder can convert their preferred shares into the number of ordinary shares, commonly at any time post to pre-establishment date. In the regular events at owners please, the convertible preferred shares are reciprocated.

The preference shares are said to be corporate shares with the dividends issued to the shareholders prior to paying the dividends to the common shares. There are 4 classified preferred stocks such as non-cumulative, convertible, participating, cumulative(guaranteed).

For cautious investors, preferential shares are ideal the issuer can purchase those ones at any time.

The Difference Between Equity Shares and Preference Shares of a Company

Investments are important in today’s uncertain age. You can not depend on a single source of income for fulfilling your needs. Everybody should invest in something to gain an additional income. If you want to make an investment in the shares of the company, then before purchasing you should be informed about the types of shares and the difference between them. If you make an uninformed investment, there are good chances that you might face losses from your investment. There are two types of Difference Between Equity Shares and Preference Shares of a Company. Now let’s know about them in detail.

Preference Shares

Preference shares are the types of shares that are given preference over the equity shares while providing dividends to the shareholders and during the liquidation of the company or redemption of shares. The preference shareholders receive a dividend at a fixed rate already specified on the share certificates. Unlike equity shareholders, the preference shareholders are not considered the owners of the company.

The word “preference” clearly shows that the preference shareholders are given preference at the time of the liquidation of the company and while the payment of dividends and thus are called “preference shares”. The preference shareholders are given a preference in liquidation and payments but unlike the equity shareholders, they do not enjoy any voting rights in the meetings and other important decisions of the company. In the case of liquidation of the company, firstly, the creditors are repaid and then the preference shareholders. The equity shareholders are the last ones to be repaid. The preference shareholders are also given arrears if the dividend for any previous year is not provided to the shareholders.

Types of Preference Shares

Participating Preference Shares/ Non-Participating Preference Shares
Convertible Preference Shares/ Non-Convertible Preference Shares
Cumulative Preference Shares/ Non-Cumulative Preference Share

Equity Shares

Also termed as ‘General Shares’, equity shares are considered a part of the total capital of the company. The equity shareholders are called the owners of the company. Equity shares are the type of share that is not given any preference during the liquidation of the company or while payment of dividends. The rate of dividend of the equity shareholders is not fixed. There may be times where such shareholders may not get any dividend at all. The dividend provided depends upon the profit earned by the company. The decision of rate and amount of dividend is decided by the directors of the company. Unlike the preference shareholders, the equity shareholders have the right to vote in the general and special meetings of the company. They also have the right to appoint or remove any director or auditor of the company.

Types of Equity Shares

Sweat Equity Share
Authorized Share Capital
Issued Share Capital
Subscribed Share Capital
Paid-up Capital
Rights Share
Bonus Share

Difference Between Preference Shares and Equity Shares

Conclusion

While making an investment, you can choose between preference shares and equity shares according to your needs. If you want a stable income from investment then you should opt for preference shares but if you want to be an owner in a company, then you should invest in equity shares. Other features of the types of shares should also be kept in mind before making an investment and an informed decision should be taken thereafter.

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