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Transfer of Shares / Securities

Transfer of shares means transferring the shares or securities of a Company from one person to another or from one body corporate or company to another body corporate or company. Transfer-ability of shares is a vital feature of any Company registered under Companies Act, 2013. Generally shares of a Public Limited Company are freely transferable, but in case of a Private Limited company, the Articles of Association of the Company restricts to transfer of shares as per Private Company Definition of section 2 (68) of the Companies Act, 2013. Articles of Association give road map and provision for Transfer of shared in case of Indian Company.  However, in certain cases such as-

1. The right of a member of the company to transfer his share to his legal representative and
2. In event of death of a shareholder, the transfer of share to his legal heir cannot be restricted.

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Who Monitors Transfer of Shares

Following are the regulatory authority for transfer of Shares.

1. Section 56 of Companies Act, 2013
2. Rule 11 of Companies (Share Capital & Debentures) Rules 2014
3. Provisions given in model articles of association given in Table ‘F’ of Schedule-I
4. Income Tax Act, 1961

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Transfer of Share shall be Void in following conditions-

Condition 1: In Violation of Articles-

Any Share transfer which is in violation of the Articles of Association of the Company shall be completely void.

Condition 2:  Without Consideration

Any Share transfer without consideration is void except in case of gift provided certain provisions are complied.

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Transfer of Shares as Gift in Private Limited Company

Pre-Conditions for transfer of Shares of Company by way of Gift

1. Whether AOA permits:

Shares of the company can be transferred only if there is a clause for transferability in the Articles of Association of the Company.

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2. Whether Board of Directors permits:

Shares of the Company cannot be transferred unless the consent of the board in the respective Board Meeting is accorded.

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Post-Conditions for transfer of Shares of Company by way of Gift

1. Issue of new Share Certificates:

Once the shares are transferred via Gift by the transferor, new share certificates shall be issued within 2 months from the date of transfer.

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2. Disclosure under Income Tax Act 1961:

If the total consideration of the Gift in case of transfer of shares is above 50,000/- then in such a case it shall be disclosed in the income tax return of the Company.

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Procedure for Transfer of Shares by way of Gift

Shares of the Company can be gifted by following procedure under two regulatory bodies-

1. Companies Act, 2013
2. Gift Tax Act, 1958

Step 1: Hold a board meeting:

If the directors of the Company desires to transfer the shares by way of gift then it has to hold a board meeting to get approval of other directors too.

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Step 2: Execution of Form SH-4 (For Share transfer)

Once the directors agrees to transfer the shares by way if gift, form SH-4 needs to be executed both by the transferor and the transferee.

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Contents of Form SH-4

• Duly stamped and Dated specifying the Name, Fathers Name, Address and Occupation, if any, of the transferee & Transferor.
• Value of consideration along with total stamp duty amount
• Folio No. of both Transferor and Transferee.
• Distinctive No, Certificate No. of share transferred.
• Nominal Value of Shares, Consideration Received.

 

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Step 3: Execution of Gift Deed

After share transfer, a gift deed needs to be executed on 500/- stamp paper duly notarised.

Enclosures for Shares Gift Deed

1. Pan card of the Donor and the Donee (Duly notarised along with gift deed)
2. Copy of Original Share Certificates
3. Copy of Form SH-4

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Step 4: Issue of New Certificates

After execution of Gift Deed, new certificates are required to be issued.

 

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What is stamp duty for Transfer of Shares as Gift

Stamp duty of 0.25% of total consideration amount and since there is no consideration value for the gift transfer, the stamp duty is calculated on the market value on the date of transfer in case of transfer of shares by way of gift.

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Amendment in Income Tax Act for Transfer of Shares by way of Gift.

The new income tax form has come up with disclosure of gifts from the FY 2017-2018. Until last year, there were no such separate disclosure requirements for filing of tax returns.

Accordingly, today gifts received by an individual or Hindu Undivided Families (HUFs) will be taxed as under:

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Gift in case of Movable/ immovable properties

Any gift received by way of gift wherein the aggregate value of gifts received without consideration is less than 50,000/- then it shall be exempt under income tax.

Eg: if Mr ‘A’ receives gift from Mr ‘B ‘worth Rs 75,000/- then the entire 75,000 is liable for tax

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Gifts in case of Immovable property only-

In case of gifting of immovable property, the recipient would be required to pay income tax if the stamp duty value of the property exceeds Rs 50,000 and wherein the difference  between  the consideration and stamp duty value exceeds higher of Rs 50,000 and 5 percent of consideration, such difference shall be taxed in the hands of the recipient.

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