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Tushar Chowdhary (Lawyer/Consultant)     04 June 2012

Resolution passed while transfer of share in private company

Is it mandatory to pass a Board Resolution everytime whenever the shares of Private Limited Company are to be transfered to some third person unknown to the existing company?

Please support the answere with specific case laws and legal provisions.



Learning

 6 Replies

A V Vishal (Advocate)     04 June 2012

 

1. Please note that section 3(1)(iii)(a) provides that a private company must restrict the right to transfer its shares by its Articles. This provision does not prohibit the right to transfer shares absolutely but ensures that such transfer of shares is made in accordance with the conditions and restrictions laid down in the Articles of the private company. One of the conditions is that such transfer should not result in the increase of members beyond fifty, excluding present and past employees. There may be other conditions in the Articles which are to be strictly followed besides those contained in section 108 while transferring the shares of a private company. Moreover , the existing value of shares, although they are not quoted on any Stock Exchange, on which basis the stamp duty is to be affixed on the transfer form, is to be determined before transferring the shares.

 

2. Make an application to the Board giving details of the proposed transfer, that is, the number of shares, consideration, name of the proposec transferee, etc.

 

3. If the Board nominaties a transferee, in place of the proposed transferee, then proceed to execute the transfer in favour of the nominee.

 

4. Fill up the transfer form in Form No. 7B duly giving the number and amount of shares and the name, address and occupation of the transferor and transferee of the shares comprising in the certificate. The amount or consideration of shares transferred should be as per the value duly ascertained, which is usually the book value of shares.

 

5. Get the signature, full name and address of two witnesses in the above transfer form and the signature of transferor(s) and transferees(s).

 

6. Put the date of transfer on the transfer form and see that the date so given is within two months of the date endorsed by the prescribed authority.

 

7. Affix stamp on the transfer form as required under the Indian Stamp Act and as applicable in the State in which the registered office of the private company is situated.

 

 

8. See that the stamps so affixed are cancelled at the time or before signing of the transfer deed.

 

 

9. If complete in all respects, the Board will approve such transfer and pass the resolution approving the transfer of shares in the private company.

 

 

10. In case you feel aggrieved with the decision of the Board, file an application to the Company Law Board for rectification of the register of members in accordance with the provisions of section 111(8).

 

 

11. Keep in mind that a private company under its Articles of Association can enforce the restrictions contained therein against the right to transfer its shares.

Tushar Chowdhary (Lawyer/Consultant)     04 June 2012

Dear Mr. Vishal,

I am not concerned about the procedure to be followed while transfering the shares. All I need is the Resolution passed by the the board as per point 9 of your descripttion is mandatory or not. What if articles doesn't provide anything relating to board resolution while transfering of shares.

Incase it is mandatory under what provisions of Law or decided case laws.

 

Regards

Tushar 

A V Vishal (Advocate)     04 June 2012

If articles doesn't provide anything relating to board resolution while transfering of shares then refer Table A of Articles of Association

Tushar Chowdhary (Lawyer/Consultant)     04 June 2012

Table A also nowhere provides that board resolution is mandatory in every share transfer. Therefore it is not mandatory. But this is implicit not explicit. This interpretation can not be relied upon.

Zafar Ahmed Siddiqui (Export & Shipping Manager)     07 June 2012

I have some share of a company but said company have closed & latter sale out, pls advise can we claim or what is value of that share
 

SUNIL K. JAIN (Practising Company Secretary)     08 June 2012

Rate of stamp duty on transfer of shares through out the country is 0.25% of the value of consideration or face value whichever is higher.


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