How to Transfer Shares in a Private Limited Company

Shares in a private limited company change hands when a co-founder exits, an investor comes in, or family members restructure ownership. The process is straightforward, but a few rules on approvals, stamp duty and dematerialisation trip up many companies.

Check the Articles first

A private company's Articles of Association (AOA) must restrict the right to transfer shares. Common restrictions are:

• Right of first refusal for existing shareholders
• Board approval for any transfer
• Lock-in or tag-along/drag-along rights from a shareholders' agreement

If the AOA or a shareholders' agreement sets a procedure, follow it before signing anything.

Physical shares: the SH-4 route

1. Seller gives notice of intention to transfer, as required by the AOA.
2. Price is agreed; get a valuation report where tax rules require fair market value.
3. Seller and buyer sign Form SH-4 (share transfer deed), witnessed.
4. Stamp duty of 0.015% of the consideration is paid.
5. SH-4 and the original share certificate are lodged with the company within 60 days.
6. Board passes a resolution approving the transfer.
7. Company endorses the certificate or issues a new one, and updates the register of members.

Demat shares

Private companies that are not small companies must now hold and transfer securities in dematerialised form. In that case the transfer happens through the depository participants of the buyer and seller, and stamp duty is collected through the depository. The company needs an ISIN and its promoters and directors must have demat accounts.

Tax points

• Seller: pays capital gains tax. Unlisted shares held for more than 24 months are long-term.
• Buyer: if shares are bought below fair market value by more than the allowed margin, the difference can be taxed in the buyer's hands.
• Company: a large change in shareholding can affect the carry-forward of past business losses.
• Transfers to or from non-residents must follow FEMA pricing guidelines and reporting in Form FC-TRS.

Read our capital gains tax guide for the current rates.

Common mistakes

• Transferring without a board resolution
• Not paying stamp duty, which makes the deed inadmissible as evidence
• Ignoring the 200-member limit for private companies
• Missing FC-TRS when a foreign investor is involved

We prepare the SH-4, board resolutions and FEMA filings in one package. See our share transfer service and FC-TRS filing.

Why Choose Vaidam Consultancy?

Our team of chartered accountants, company secretaries and legal professionals handles the paperwork so you can focus on growing your business.

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Frequently Asked Questions

Q1. Can shares of a private company be sold to anyone?

Not freely. The Articles of Association usually restrict transfers, for example by giving existing shareholders a right of first refusal, and the total members cannot exceed 200.

Q2. Is stamp duty payable on share transfer?

Yes. Stamp duty of 0.015% of the consideration applies on transfer of shares, collected through the depository for demat shares or paid on the SH-4 for physical shares.

Q3. Must private company shares be in demat form?

Private companies other than small companies are required to issue and transfer securities only in dematerialised form. Small companies can still use physical certificates.

Q4. Is any ROC form filed for share transfer?

Usually no separate form is filed for a simple transfer, but the change is reflected in the annual return MGT-7 and in the register of members.