Procedure With Regards To Transfer of Shares
Procedure With Regards To Transfer of Shares
Procedure With Regards To Transfer of Shares
1. Transfer of shares, is one of the most important right, of a member. Even Articles of
Association, of a company, cannot take away this right, although it can place certain
restrictions on transfer of shares.
2. One of the common restriction on transfer in a private company is the pre-emption clause
which states that the intending transfer, must first after the shares to the existing members of
the company, so long as a member can be found to purchase them at a fair price.
3. Transfer of shares, involves, two types of transaction, namely:
i.
Buying of shares, i.e. transferee
ii.
Selling of shares, i.e. transferor
BUYING OF SHARES
1. Shares may be brought directly, from the seller, or through a broker. Generally, shares are
brought, through a broker in stock exchange, as it is not possible for buyer and seller to come
in direct content, because of voluminous trading.
Thus the first method is locate a broker.
2. Then, the buyer gives all the details to the broker, regarding:
i.
the name of company of which he wants to buy shares,
ii.
maximum price at which he is willing to buy,
iii.
Commission to be paid to broker and any advance money.
iv.
Number of shares to be purchased.
All these are negotiable, as the buyer may change his opinion, on an advice given by broker.
3. Then, the broker, will hunt for the shares, the buyer wants to buy, at quoted price. The buying
may take place on the trading floor of stock exchange, or at any other place. Once the order is
fulfilled, broker will send a "contact rate" to the buyer, containing details and specifications.
4. Share certificates will be received by the broker, through clearing house of the stock
exchange, or directly from the selling broker. This certificate will be duly accompanied by a
transfer deed signed by transferor, and stamped, and authenticated by a witness.
5. When, the share certificate is delivered to the buyer; he will pay the balance money (purchase
consideration) to the broker.
6. If buyer wants to retain the shares, he will then fill up the transfer deed, stamp them properly,
and shall lodge the share certificates and transfer deeds with the company.
7. Finally after scrutinizing, the transfer deed, and share certificate, the company will register the
name of transferee in register of members, as a member. On completion of this, the
transferee acquires the status of member.
8. A buyer who does not wish to retain the shares, and wants to sell them further, may ask for a
"Blank Transfer form" from the transfer, which will not have name a of transferee. This
enables the buyer to further sell it. This practice is common to stock exchange.
SELLING OF SHARES
1. The seller may directly sell the shares, to a buyer, but here also, it is generally preferred to
image services of broker.
2. An Order , i.e. "Sale order" will be placed, alongwith:i.
Share Certificate
ii.
Transfer deed, and
iii.
Details like minimum price etc.
3. On receiving, all such things, the broker will hunt for a buyer, and strike the deal over the
trading floor of stock exchange or at any other place.
4. Once the negotiations are complete, broker will hand over the share certificate, and transfer
form to the buyer, and take the payment.
5. Finally, the payment will be handed over to the seller, after deducting commission.
If, seller was a member of the company, his name will be struck off, from the register of member,
once; company receives the share certificates and transfer forms.
PROCEDURE/STEPS TO BE FOLLOWED BY THE COMPANY WITH REGARD TO TRANSFER OF
SHARES
REGISTRATION OF TRANSFER
The company shall register transfer of shares, only when:
1.
2.
3.
4.
5.
ACKNOWLEDGE
When, the company received all the requisite documents it generally gives an acknowledgement for
the same.
-If the instrument of transfer is received from a person other than the transferor and the shares are
partly paid -up, the company has to send a notice to the transferee, and it may also send a notice to
the transferor.
TIME LIMIT
Before effecting any transfer, the company should ensure that the instrument is lodged within the
time limit as follows:
SHARES TRANSFERRED THROUGH A PRESCRIBED FORM
SHARES DEALT IN OR QUOTED ON A STOCK EXCHANGE
Instrument of transfer, alongwith requisite documents, should be delivered, at any time before the
date on which the register of members in closed, for the first time after the date of the presentation of
the prescribed form before the prescribed authority.Or
Within twelve months from the date of such presentation, whichever is later.
IN OTHER CASE: (i.e. where shares are not quoted on a stock exchange)
In such a case, within two months from the date of such presentation.
The above said time limit is only where shares are transferred through a "Prescribed form"
deposited with a bank, when shares are being used as a security for a loan. A blank transfer can
also be used when shares are held by nominees, the beneficial owner holding the blank transfer.