Share Transfer in a Private Limited Company
A share transfer in a private limited company moves shares by sale or gift; transmission moves them by operation of law, usually on death. For physical shares, Section 56 of the Companies Act, 2013 requires a stamped Form SH-4 at the company within 60 days of signing; the company then has one month to deliver the certificates. We handle the deed, stamp duty and board approval, on paper or in demat.
What it is
A share transfer changes who owns shares that already exist. The transferor (seller or donor) hands them to the transferee (buyer or recipient). No new shares are issued; only the register of members changes.
The law is Section 56 of the Companies Act, 2013, read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014, which prescribes Form SH-4 for physical shares. Here is the catch: Section 2(68) requires a private company’s articles to restrict share transfers, so the articles, not just the buyer and seller, decide who may buy. SH-4 is lodged with the company, not filed on the MCA V3 portal. The change then shows in the next annual return (MGT-7 or MGT-7A), part of your annual ROC filings.
Who it applies to
You are selling or gifting shares
A founder selling out to a partner, or a parent gifting shares to a child. Physical shares need a stamped SH-4; demat shares, a delivery instruction.
A shareholder has died
The nominee or legal heirs claim the shares by transmission. No SH-4 is needed, but the company still wants the death certificate and succession papers.
An NRI is buying or selling
When an NRI or foreign investor deals with a resident, FEMA pricing rules apply. The transfer is reported to the RBI in Form FC-TRS.
Why it matters
Only the register makes the buyer a member
Until the company registers the transfer, the register of members still shows the seller. Dividends and votes follow the register, not the cheque.
Price it right or pay tax on the gap
Sell unquoted shares below fair market value and income tax follows the fair value, on both sides of the deal. Tax planning before the sale avoids the surprise.
Keep the paper trail investors ask for
In practice, due diligence asks for the stamped SH-4 and the board minutes behind each change. One missing deed can stall a funding round years later.
Documents required
What the seller hands over
- Original share certificate(s)
- Form SH-4 signed by the transferor
- PAN and address proof
- For demat shares: a delivery instruction slip
What the buyer provides
- Form SH-4 signed by the transferee, with name, address and occupation
- PAN and address proof
- Demat account details, where relevant
- For a non-resident: KYC and remittance details
What the company keeps ready
- Articles of association
- Board resolution approving the transfer
- Valuation report under Rule 57 of the Income-tax Rules, 2026
- For transmission: death certificate and the SH-13 nomination or succession papers
Transfer vs transmission
| Transfer | Transmission | |
|---|---|---|
| How it happens | Voluntary: sale or gift | By operation of law, usually on death |
| Who starts it | Seller and buyer | Nominee or legal heir |
| Main document | Stamped SH-4 (physical) or delivery instruction (demat) | Death certificate with nomination or succession papers |
| Stamp duty | 0.015% of the consideration | None; there is no instrument of transfer |
| Income-tax on the receiver | Section 92(2)(m) if the price is below fair value; gifts from relatives exempt | Will and inheritance are exempt |
Picture a Faridabad family company where the mother held shares and never filed an SH-13 nomination. Her children must show proof of succession, such as a succession certificate or probate, before the register changes.
Physical or demat: which route applies
Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, notified on 27 October 2023, makes every private company, other than a small or government company, issue securities only in demat form. Once it applies, shareholders must dematerialise before transferring (Rule 9B(4)).
| Your company | How shares can be transferred |
|---|---|
| Small company: paid-up capital up to ₹10 crore and turnover up to ₹100 crore (from 1 December 2025) | Rule 9B does not apply; SH-4 still works |
| Not a small company on 31 March 2023 | Compliance date 30 June 2025 (extended from 30 September 2024); demat before any transfer |
| Stopped being small in a later year | 18 months from that year-end; then demat before transfer |
One grey area remains: a company caught under the old ₹4 crore and ₹40 crore limits may now fit the new ones, and whether it can return to physical transfers is not settled. We check your audited figures first. Demat transfers run off-market through the depository, which collects the stamp duty.
How it works
Read the articles and pick the route
Say two founders run a Faridabad auto-parts company and one wants out. We read the articles for pre-emption clauses and check whether Rule 9B means demat. If other members get first refusal, that offer goes out before anyone signs.
Fix the price and back it with a valuation
We get fair market value worked out under Rule 57, plus a FEMA fair-value certificate if a non-resident is involved.
Sign and stamp the SH-4
Both sides sign SH-4, stamped at 0.015% of the consideration. For demat shares, the seller instructs the depository participant instead.
Lodge the deed and pass the board resolution
The SH-4 and certificate go to the company within 60 days of execution. The board approves, or sends reasons for refusal within 30 days.
Update the register and hand over certificates
We enter the buyer in the register of members under Section 88 and deliver certificates within one month. Our ongoing compliance support covers FC-TRS where a non-resident is involved.
Timelines
Lodge SH-4 within 60 days of signing
Under Section 56(1) and Rule 11, the dated, stamped SH-4 must reach the company within 60 days of execution. Missed it, or lost the deed? The board can still register it on indemnity terms.
Deliver certificates within one month
Under Section 56(4)(c), the month runs from receipt of the instrument of transfer or the intimation of transmission, not from the board meeting.
Send any refusal within 30 days
A private company that refuses must give reasons within 30 days of receiving the SH-4 (Section 58(1)). The buyer can appeal to the NCLT within 30 days of the notice, or within 60 days of delivery if no notice came.
What happens if you get it wrong
You face a ₹50,000 penalty
Any default under Section 56(1) to (5), late certificates included, makes the company and every officer in default liable to a ₹50,000 penalty under Section 56(6).
The board turns the transfer back
An unstamped deed or a sale that ignores the articles can be refused. Where Rule 9B applies, physical shares must be dematerialised first. Until then, the seller stays on the register.
Both sides pay tax on a cheap deal
Sell unquoted shares below fair market value and Section 79 of the Income-tax Act, 2025 computes the seller’s gain on that value. The buyer is taxed on a shortfall above ₹50,000 under Section 92(2)(m).
Frequently asked questions
What is Form SH-4 and who signs it?
Form SH-4 is the share transfer deed for physical shares, prescribed by Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014. Transferor and transferee both sign it, and it names the buyer with address and occupation. It must be dated, stamped and reach the company with the share certificate within 60 days of execution. We draft it and check every entry before anyone signs.
How much stamp duty is payable on a share transfer?
Stamp duty is 0.015% of the consideration, or ₹1,500 per crore. Since 1 July 2020, one rate applies across India, Haryana and Delhi included. On a ₹10 lakh sale, the duty is ₹150. For demat shares, the depository collects it. A genuine gift with no consideration attracts no transfer duty. The amount is small, and we get the deed stamped before signing.
Can a private company refuse to register a share transfer?
Yes, if its articles give the board that power. Section 58(1) requires a notice of refusal, with reasons, to both parties within 30 days of receiving the SH-4. The buyer can appeal to the National Company Law Tribunal within 30 days of the notice, or within 60 days of delivery if no notice was sent. Check the articles before signing and a refusal will not catch you off guard.
Do shares have to be in demat form before a transfer?
Only if Rule 9B applies. A private company that was not small on 31 March 2023 had to comply by 30 June 2025; one that stops being small later gets 18 months from that year-end. After that, shares must be dematerialised before transfer. Small companies, with paid-up capital up to ₹10 crore and turnover up to ₹100 crore, can still use SH-4. We confirm your status from the audited accounts first.
How soon must the company issue the share certificate?
Within one month of receiving the instrument of transfer (or, for transmission, the intimation), under Section 56(4)(c). Certificates are in Form SH-1, signed by two directors, or by a director and the company secretary where one is appointed. Miss the deadline and the company and officers in default face a ₹50,000 penalty under Section 56(6). Plan the board meeting early and one month is plenty.
What happens to a shareholder’s shares after death?
The shares pass by transmission, so no SH-4 or stamp duty is needed. If the shareholder filed a nomination in Form SH-13, Rule 19 lets the nominee elect to be registered, with a signed notice and the death certificate, or transfer the shares onward. Without a nomination, legal heirs show a succession certificate or probate. We prepare the paperwork so the family is not left chasing it.
Can shares be sold or gifted below fair market value?
Yes, but income tax looks through the price. For transfers from 1 April 2026, Section 79 of the Income-tax Act, 2025 (earlier Section 50CA) treats the fair market value of unquoted shares as the seller’s sale price, and Section 92(2)(m) (earlier 56(2)(x)) taxes the buyer on a shortfall above ₹50,000. Fair value follows Rule 57 of the Income-tax Rules, 2026. A son gifted shares by his father pays nothing on the receiving side: gifts from relatives are exempt.
What extra steps apply if the buyer or seller is an NRI?
FEMA pricing and reporting apply. Say you sell shares to a cousin in Dubai: the price cannot go below fair value certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant. A non-resident selling to a resident cannot go above it. Form FC-TRS is filed on the RBI’s FIRMS portal within 60 days of the transfer or of receipt or remittance of funds, whichever is earlier; non-repatriation holdings are outside it. We line up the valuation before money moves.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
| Government cost | Amount |
|---|---|
| Stamp duty on SH-4 or an off-market demat transfer | 0.015% of the consideration (₹1,500 per crore) |
| MCA filing fee for SH-4 | None; SH-4 is not filed with the ROC |
Ready to begin?
Tell us who is selling, who is buying and how the shares are held. We will take it from SH-4 to the updated register.