In a company, transfer of shares from one shareholder to another is commonly called "secondary share sale". When two shareholders are exchanging a company's shares for a specified consideration, the company also has a role in consummating the transaction.

In a 'Pvt Ltd' entity, a resident / non-resident shareholder can transfer to another resident / non-resident person. The selling shareholder is usually referred to as "Transferor" and the buyer is referred to as "Transferee".

The following steps are to be followed to give effect to and consummate the transaction.

Form SH-4 needs to be filled

Form SH-4 needs to be filled capturing the following:

• Details of the transferor and transferee, along with their signatures (Verified by the witnesses)
• Number of shares exchanged between the parties and Consideration paid for the same, among other details.

Transferor shall report the transaction to the company

The responsibility of filling the SH4 form rests with the Transferor. The Transferor shall report the transaction to the company' Board. Form SH-4 is a physical form, therefore no filing to be made with the ROC.

Board's approval is required to consummate the transfer

Once the company receives the Form SH-4, the Board's approval is required to consummate the transfer. Once the Board approves, the company shall record it in Register of Member i.e. Form MGT-1 within 7 days from approval of transfer.

FCTRS needs to be filed (if required)

If the Transferor or the Transferee is a non-resident, FCTRS needs to be filed with RBI within 60 days from the date of transfer.

Share certificates may have to be split

In case the Transferor transfers only part of its shares to the Transferee, share certificates may have to be split for such number of shares that are being transacted.

Splitting of share certificates will require the Board's involvement to split the share certificate and reissue the same. The company will also update the registers to capture the share certificate split.

Remittance of due stamp duty charges

An important step in the transfer of shares is remittance of due stamp duty charges. Stamp duty payment has to be made on or before the date of transfer. Stamp duty is usually 0.015% of the transaction value.

Summary

In summary, if you intend to sell a company's shares, compliance is important. If not followed, the transaction could potentially be declared void or attract penalties.