Transfer of shares in a company — three steps, done right.

One — execute Form SH-4, the instrument of transfer, with adequate stamp duty.

Two — the company receives and accepts SH-4, and the board passes a resolution approving the transfer.

Three — new share certificates are issued (or the transfer is effected in the demat account) and the register of members is updated. Everything else is detail around those three.

Not always. Unlike shares of a public company, shares of a Private Limited Company are subject to restrictions contained in the company's Articles of Association (AOA) and, where applicable, a valid shareholders' agreement.

For example, if a shareholder of a private company in Mumbai wants to sell their shares to an outside investor, the AOA may require them to first offer the shares to the existing shareholders under a pre-emption or right-of-first-refusal mechanism.

Therefore, the first step should generally be to review the AOA and any applicable shareholders' agreement before negotiating or executing the transfer.

Yes. By definition under the Companies Act, a private company restricts the right to transfer its shares through its articles. The board can refuse registration: it must send the transferor and transferee notice of refusal, with reasons, within 30 days of the instrument being delivered. Refusal must be a proper board decision, not inaction.

The aggrieved party can appeal to the National Company Law Tribunal (NCLT) — within 30 days of receiving the notice of refusal, or where no notice was sent, within 60 days of delivering the instrument to the company. The NCLT can direct the company to register the transfer. It's a real safeguard, but slow and expensive, which is why reading the articles before signing matters.

Because the articles often impose a procedure the Companies Act doesn't. Pre-emption or right-of-first-refusal clauses, board consent requirements, valuation mechanics, lock-ins, transfer restrictions on outsiders — any of these can invalidate a transfer done without following them. When a shareholder wanted to sell their stake in a Pune company, the articles required that shared be valued in a certain method. Not checking the AoA may create a defective transfer.

They may, depending on the company's AOA and applicable contractual arrangements.

Private companies commonly include pre-emption, right of first refusal or similar transfer restrictions in their constitutional documents. However, the precise procedure, pricing mechanism and time period must be determined from the actual AOA rather than assumed from a standard template.

No. The answer depends principally on how the shares are held – physical or DEMAT form.

Form SH-4 is the prescribed instrument for transfer of securities held in physical form, subject to the applicable statutory provisions and exceptions.

Where securities are held and transferred in dematerialised form through a depository, the transfer is processed through the applicable depository mechanism (usually transfer slips) rather than SH-4.

For certain Private Limited Companies, yes.

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requires certain Private Companies to issue securities only in DEMAT form and facilitate DEMAT of old securities.

Valuation becomes particularly important where:

• the parties are related;
• the transaction involves a non-resident or has FEMA implications
• the transaction forms part of a restructuring;
• the transfer price needs to be supported for income-tax purposes.

For an unquoted share transfer, Section 79 of the Income-tax Act, 2025 (earlier Sections 50CA/56 of Income Tax Act 1961)  is relevant where the consideration is below the prescribed fair market value.

For tax purposes, the holding period determines if the shares are treated as short-term or long-term capital assets.

Under the current framework, unlisted shares held for more than 24 months are generally treated as long-term capital assets.

A resident–non-resident transfer can involve Companies Act, FEMA, RBI, tax and valuation requirements simultaneously.

Therefore, if a resident shareholder in Pune proposes to sell shares to an overseas investor; Under RBI regulations, Form FC-TRS needs to be filed within the prescribed time period and pricing, eligibility, reporting and approval requirements need to be followed.

For a comprehensive FEMA perspective, visit this page.

It can be.

FEMA pricing rules for resident to non-resident and vice-versa transfers require valuation certification.

This valuation should be aligned with the requirements under the Companies Act and Income tax.

Yes, shares can in appropriate circumstances be transferred as a gift, but the legal and tax consequences must be examined separately.

For example, if a shareholder in Kandivali proposes to gift shares of his private company to his NRI son, the company-law documentation, AOA restrictions, stamping, shareholding records, FEMA and tax provisions must be considered.

For a simple transfer between existing shareholders, a separate Share Transfer Agreement is not legally mandatory.

However where such an agreement exists, the thing to note IS - a shareholding agreement is usually not binding on the Company itself unless the AoA has incorporated the terms of such agreement.

Entrecap recommends deciding the documentation based on the nature, value and risk profile of the transaction, rather than using the same document for every share transfer.

No.

Transfer of shares is generally a voluntary transaction initiated by the shareholder, such as a sale, gift or other voluntary transfer.

Transmission of shares generally arises by operation of law, such as on the death or insolvency of a shareholder, rather than through a voluntary sale by the shareholder.

For example, if a shareholder passes away while holding shares in a Private Limited Company, their legal heirs would generally be dealing with a transmission process rather than an ordinary voluntary share-transfer process.

Between two residents, ordinarily no TDS applies on the purchase consideration for unlisted shares. Where the seller is a non-resident, however, the buyer has a withholding obligation on the consideration, and the Form 146/145 (earlier Forms 15CA/15CB) certification route comes into play on remittance. Getting this wrong makes the buyer liable, which is why it's checked before money moves, not after.

For specific tax consultancy you can check here.