Share Transfer

Overview

Transfer of shares in a Private Limited Company involves executing a Share Transfer Deed (Form SH-4), paying stamp duty at 0.25% of the higher of consideration or Fair Market Value, obtaining board approval where required by the Articles, updating the Register of Members, and issuing a new Share Certificate to the transferee within 1 month.

Share transfers in closely-held private companies often require compliance with pre-emption rights (ROFR) — existing shareholders must be offered shares first before transfer to outsiders. The Shareholders' Agreement may impose lock-in periods or approval conditions. Tax implications: the seller pays capital gains tax (STCG at slab rate if held less than 24 months; LTCG at 20% with indexation if held 24+ months). Under Section 50CA, if the sale consideration is below FMV, the seller is deemed to have received FMV for capital gains computation. Under Section 56(2)(x), if shares are transferred below FMV, the difference is taxable in the buyer's hands.

MFiling professional charges: from Rs.2,999 per share transfer transaction.

Key Benefits

ROFR and Pre-Emption Rights Compliance

MFiling checks SHA and AOA for ROFR obligations — ensures existing shareholders are offered shares first.

SH-4 Executed Correctly

Share Transfer Deed in Form SH-4 executed with correct stamp duty — both transferor and transferee signatures obtained.

Stamp Duty Calculated on FMV

0.25% stamp duty on higher of consideration or FMV — correctly computed to prevent stamp duty shortfall issues.

Board Approval Obtained

Board meeting convened for transfer approval (where AOA requires) — certified resolution prepared.

New Share Certificate Issued

New Share Certificate issued to the transferee within 1 month of board approval — physically signed by two directors.

Documents Required

Share Certificate(s) of the Transferor (to be cancelled)

PAN Card and Identity Proof of Transferee

Shareholders' Agreement (to verify ROFR, lock-in, and approval conditions)

Valuation Certificate for Fair Market Value (if shares not publicly traded)

Board Resolution Approving Share Transfer

Identity Proof of Transferor — PAN Card and Aadhaar Card

Proof of Payment — Bank Transfer Challan or Cheque Copy for Share Consideration Paid

ROFR Waiver Letter or No Objection from Existing Shareholders (if pre-emption rights are waived)

Seller's Indemnity / Representations Letter Confirming No Prior Claims on Shares

How it Works

Check SHA and AOA for Transfer Restrictions (Day 1)

Review Shareholders' Agreement and Articles for ROFR, lock-in periods, and board approval requirements.

Offer Shares to Existing Shareholders (if ROFR) (Day 1–15 (ROFR period))

Issue ROFR notice to existing shareholders — allow required time for exercise of pre-emption rights.

Determine Fair Market Value (Day 1–3)

Obtain FMV valuation — DCF or NAV method — to ensure Section 50CA and 56(2)(x) compliance.

Execute Form SH-4 and Pay Stamp Duty (Day 2–3)

Execute Share Transfer Deed (SH-4) signed by both parties — affix 0.25% stamp duty on higher of consideration or FMV.

Board Meeting — Approve Transfer (Day 3–5)

Hold board meeting to approve transfer (if Articles require) — certify and sign resolution.

Update Register of Members (Day 5)

Record transfer in Register of Members — update transferee details, date of transfer, and folio number.

Issue New Share Certificate to Transferee (Within 1 month)

Cancel old share certificate and issue new one to transferee within 1 month of board approval — signed by two directors.

Frequently Asked Questions

Is stamp duty on share transfer the same across all states?

No. Stamp duty on share transfer deeds (Form SH-4) is governed by the Indian Stamp Act and state stamp duty schedules. The typical rate is 0.25% of consideration or FMV (whichever is higher) — this rate applies in most states. However, some states have different rates or additional surcharges. Maharashtra, for example, has specific provisions. MFiling calculates stamp duty applicable in the relevant state for each share transfer.

What are the tax implications when shares are transferred at a price below Fair Market Value?

Two provisions apply: (1) Section 50CA for the seller — if consideration received is less than FMV, the seller is deemed to have received FMV for capital gains computation (seller pays tax as if sold at FMV even if actual price was lower). (2) Section 56(2)(x) for the buyer — if shares are received at below FMV, the difference (FMV minus consideration) is taxable in the buyer's hands as 'Income from Other Sources'. This can create a double-tax situation. MFiling advises on structuring share transfers at or near FMV to avoid these provisions.

What is the time limit for submitting Form SH-4 to the company after execution?

Form SH-4 (Share Transfer Deed) must be submitted to the company within 60 days of its execution (date of signing). If submitted after 60 days, the company cannot register the transfer and the transferee must obtain fresh execution by the transferor. The board must then approve the transfer within 30 days of receipt of the duly stamped SH-4, and the new share certificate must be issued within 1 month of board approval. Missing these timelines creates complications in completing the legal transfer.

Service Price

₹2,999

Starting price · GST extra

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ROFR and Pre-Emption Rights Compliance

MFiling checks SHA and AOA for ROFR obligations — ensures existing shareholders are offered shares first.

SH-4 Executed Correctly

Share Transfer Deed in Form SH-4 executed with correct stamp duty — both transferor and transferee signatures obtained.

Stamp Duty Calculated on FMV

0.25% stamp duty on higher of consideration or FMV — correctly computed to prevent stamp duty shortfall issues.

Board Approval Obtained

Board meeting convened for transfer approval (where AOA requires) — certified resolution prepared.

New Share Certificate Issued

New Share Certificate issued to the transferee within 1 month of board approval — physically signed by two directors.

Overview

Key Benefits

Documents Required

How it Works

Frequently Asked Questions

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