# Share Transfer in a Private Company

> Shares of a private company are transferred by an instrument of transfer in Form SH-4 (or through the depository if the shares are in demat form), stamped at 0.015% of the consideration, approved by the board in line with the articles, and recorded in the register of members within a month. If a non-resident is buyer or seller, FEMA pricing rules and Form FC-TRS within 60 days also apply.

Practice: Company Secretary & Corporate Compliance — https://www.industax.com/services/company-secretary/

Private companies restrict share transfers through their articles — usually with pre-emption rights for existing shareholders or board approval. The first step is reading the articles and any shareholders' agreement, because a transfer that ignores them can be refused or challenged.

Since the demat rules for private companies (Rule 9B), companies that are not small companies must issue and transfer securities only in dematerialised form, so transfers move through the depository participants. Small companies may still transfer physical shares using SH-4.

Tax matters too: if shares are transferred below fair market value, the buyer can be taxed on the difference under Section 56(2)(x) and the seller's consideration deemed at FMV under Section 50CA. We get the FMV computed and documented before the transfer.

## Key facts

| Item | Detail |
| --- | --- |
| Instrument | Form SH-4 (physical) or depository instruction (demat) |
| Stamp duty | 0.015% of consideration on transfer of shares |
| Register update | Within one month of receiving the instrument (Section 56) |
| Non-resident party | FEMA pricing guidelines; Form FC-TRS within 60 days |
| Income tax | Transfers below FMV taxed under Sections 56(2)(x) / 50CA |

## Who needs this

- Founders and shareholders exiting or restructuring holdings
- Family transfers and gifts of shares
- Investors buying secondary shares
- Transfers between residents and non-residents

## What's included

- Articles and SHA review for restrictions
- FMV valuation coordination for tax
- SH-4 / demat transfer documentation and stamping
- Board approval and register updates
- FC-TRS filing for cross-border transfers

## Documents

- Share certificates (physical) or demat statements
- Articles of association and shareholders' agreement
- PAN and KYC of buyer and seller
- Agreed price and payment proof
- Valuation report (where required)

## Process

1. **Restrictions check** — Articles, SHA and pre-emption rights reviewed.
2. **Price and tax** — FMV determined; FEMA pricing checked for non-residents.
3. **Execution** — SH-4 executed and stamped or demat transfer instructed.
4. **Approval and records** — Board approval, register and certificate updates, FC-TRS if needed.

## Also covers

- **Shareholding change** — Updating registers, cap table and filings after a change in shareholding.

## FAQs

### What is the stamp duty on transfer of shares?

0.015% of the consideration under the Indian Stamp Act as amended from July 2020, collected through the depository for demat transfers.

### Can a private company refuse a share transfer?

It can enforce restrictions in its articles, such as pre-emption rights. A refusal must follow the articles and the Companies Act, and the transferee can appeal to the NCLT.

### Is a share transfer to an NRI allowed?

Yes, subject to FEMA pricing guidelines and sectoral rules; the transfer is reported in Form FC-TRS within 60 days of the transfer or receipt of funds, whichever is earlier.

### Do we need a valuation for a share transfer?

For income tax, yes if the price may be below fair market value; for transfers involving non-residents, FEMA requires pricing based on an internationally accepted valuation method.

## Official sources

- Ministry of Corporate Affairs — MCA21 portal: https://www.mca.gov.in/
- Companies Act, 2013 (India Code): https://www.indiacode.nic.in/handle/123456789/2114
- RBI — FIRMS portal (FC-TRS): https://firms.rbi.org.in/

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Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.