Share transfer and allotment are two of the most common corporate transactions in a Private Limited Company — whether you're bringing in a new investor, restructuring ownership, buying out a partner's stake, or issuing ESOPs to employees. Both transactions require specific procedural compliance under the Companies Act, 2013. Getting them wrong can create legal complications, affect future fundraising, and attract ROC scrutiny. This guide explains the complete procedure for both.
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1. Share Transfer — Procedure and Compliance
Share transfer is when an existing shareholder (transferor) sells or gifts shares to another person (transferee). The procedure:
- Step 1 — Share Transfer Deed (Form SH-4): Execute the share transfer deed in prescribed Form SH-4 — signed by both transferor and transferee, and stamped with appropriate stamp duty
- Step 2 — Board approval: The transferee submits the transfer deed along with the original share certificate to the company. The Board of Directors must approve the transfer at a Board Meeting.
- Step 3 — Update Register of Members: Update the company's Register of Members (Form MGT-1) with the new shareholder details
- Step 4 — Issue new share certificate: Issue a new share certificate to the transferee within 2 months of approval — in the prescribed format with company seal
- Step 5 — No ROC filing required: Share transfer itself does not require filing with ROC — but the updated shareholding will reflect in the next Annual Return (MGT-7)
2. Share Allotment — Procedure and Compliance
Share allotment is when the company issues new shares — increasing total paid-up capital. Common reasons: fundraising from investors, ESOP exercise, rights issue, bonus shares, or conversion of loans.
- Step 1 — Board Meeting: Pass Board Resolution approving the allotment — specifying number of shares, price per share (must not be below face value), allottee details, and class of shares
- Step 2 — General Meeting (if required): Preferential allotment to persons other than existing members requires a Special Resolution at a General Meeting
- Step 3 — Receive application and money: Collect share application money from allottees into a separate bank account
- Step 4 — File PAS-3 with ROC: File Return of Allotment (Form PAS-3) with the Registrar of Companies within 30 days of allotment — with allottee details, consideration received, and board resolution
- Step 5 — Issue share certificates: Issue share certificates within 2 months (Form SH-1 format)
- Step 6 — Update Register of Members
Missing the 30-day PAS-3 filing deadline for allotment results in late fees of ₹100 per day per form. Our team ensures timely ROC filing for all corporate transactions.
PAS-3 Filing Help →3. Stamp Duty on Share Transfer
- Stamp duty on share transfer is levied on the market value of shares — at 0.015% of the market value (for physical shares transferred via Form SH-4)
- For demat shares transferred on stock exchange — stamp duty at 0.015% applies on the buyer
- Stamp duty is paid on Form SH-4 (the Share Transfer Deed) — typically by affixing adhesive stamps or e-stamping depending on the state
- Stamp duty payment is mandatory — an unstamped transfer deed is invalid and the transfer cannot be registered
4. Restrictions on Transfer in Private Companies
Private Limited Companies by definition must restrict the right to transfer shares — this is a mandatory requirement under the Companies Act. Common restrictions in AOA:
- Right of Pre-emption: Existing shareholders have first right to purchase the shares before they can be offered to outsiders
- Board approval: Board must approve every share transfer
- Shareholders Agreement restrictions: Additional transfer restrictions, lock-in periods, and tag-along/drag-along rights in SHA
Failure to follow the restrictions in the AOA or SHA can make the transfer invalid and expose the company and directors to legal risk.
5. ROC Filings Required
| Transaction | Form | Timeline |
|---|---|---|
| New share allotment | PAS-3 (Return of Allotment) | Within 30 days of allotment |
| Increase in authorised capital | SH-7 + MGT-14 | Within 30 days of resolution |
| Share transfer (annual reflection) | MGT-7 (Annual Return) | Annual — 60 days from AGM |
| Reduction of capital | Court/NCLT order + ROC filing | As per NCLT order |
Share Transfer & Allotment Compliance — For Private Limited Companies Pan-India
Board meetings, share transfer deeds, PAS-3 allotment returns, share certificates, Register of Members updates, and all related ROC filings — our CA and company law team handles complete share transfer and allotment compliance for companies in Banda, NCR, UP, and across India.
Send an Enquiry →Disclaimer: This article is for general informational purposes only and does not constitute professional legal, tax, or financial advice. Laws and rules are subject to change. For advice specific to your situation, please consult a qualified Chartered Accountant.