What is Share Transfer?
Share Transfer is the legal process by which a company shareholder voluntarily transfers their ownership rights — and associated obligations — in a company's shares to another person. It is governed by Section 56 of the Companies Act, 2013 and Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014.
In private limited companies, the Articles of Association (AOA) typically imposes pre-emptive rights — requiring the selling shareholder to first offer shares to existing members before transferring to an outsider. Directors may also have discretion to approve or reject transfers per the AOA.
Types of Share Transfer
| Type | Description |
|---|
| Transfer by Sale | Shares sold for monetary consideration between parties |
| Gift Transfer | Shares transferred without consideration (as a gift) |
| Transfer by Inheritance | Shares transmitted to legal heir/nominee upon death of shareholder |
| Pledge Transfer | Shares pledged as security for loans to financial institutions |
Pre-Emptive Rights in Private Companies
Before transferring shares to an outsider in a private company:
- Selling shareholder must notify the Board/Company of intent to sell
- Company offers shares to existing shareholders at a price determined per AOA guidelines
- Existing shareholders have a specified period to exercise the right of first refusal
- Only if no existing shareholder accepts can shares be transferred to an external party
Stamp Duty on Share Transfer
Stamp duty is mandatory on Share Transfer Deeds (Form SH-4). Rate: 0.25% of the consideration value (i.e., 25 paise per ₹100 of share value). Varies slightly by state. Must be paid before submitting the deed.
