Share transfer in a private limited company: process and stamp duty

Process for physical shares

1. 1.Check the AOA and any shareholders' agreement for pre-emption rights, consent requirements or lock-ins.
2. 2.Offer the shares to existing shareholders first, if the articles require it.
3. 3.Agree the price; get a valuation if needed for tax or FEMA.
4. 4.Execute SH-4, signed by transferor and transferee, and pay stamp duty.
5. 5.Lodge SH-4 with the original share certificate with the company within 60 days of execution.
6. 6.Board approves the transfer and endorses or issues a new certificate.
7. 7.Update the register of members.

Stamp duty on share transfers is charged at a uniform rate under the Indian Stamp Act, collected through the depository for demat shares or paid on the SH-4 for physical shares.

Demat shares

Private companies that are not small companies must have their shares in demat form. For demat shares, transfer happens through the depository participants, and the company only updates its records from the depository.

Tax

The seller pays capital gains tax. If shares are transferred below fair market value, the buyer can be taxed on the difference, and the seller's sale price may be deemed at fair value.