• Share transfer

A private limited company has 3 shareholder, X (50%),Y (15%) & Z (35%). X and Y are the subscribers to the memorandum. The company was incorporated with X (50%) and Y (50%), Y later sold 35% to Z. X is the managing director, Y is a director and Z is an additional director (foreign citizen). Is it possible for X & Y to sell their shares to Z and another person who is an Indian citizen (A) making Z & A's shareholding 1:1? If yes, what is the procedure? There is no restriction in the Articles. Thanks in advance.
Asked 7 years ago in Business Law

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2 Answers

1) X and Y can sell their shares to Z

2) Under the automatic route, no prior permission of the FIPB or RBI is required for FDI in a Private Limited Company. The Company must only file certain filings relating to the FDI with the Reserve Bank of India after purchase of shares by Z

3) FDI in a Private Limited Company falls under two categories, automatic route or approval route. FDI is permitted upto 100% in most of the sectors other than those sectors which are capped or restricted. In cases where automatic approval is not allowed, prior approval from the Foreign Investment Promotion Board (FIPB) of the Government of India must be obtained prior to the investment

Ajay Sethi
Advocate, Mumbai
95198 Answers
7607 Consultations

5.0 on 5.0

Hi

I) Yes- X and Y can sell their shares to Z and an Indian .

II) Both Z and A can retain their share holding on a 1:1 ratio.

III) Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in Link https://rbidocs.rbi.org.in/rdocs/notification/PDFs/13270.pdf

IV) You need to refer to DIPP Circular ( http://dipp.nic.in/English/policies/FDI_Circular_2015.pdf), Annexure 2 for the terms and conditions for transfer of shares/Convertible debentures by way of sale by X and Y to Z and the relevant sections of the same are reproduced below

Terms and conditions for Transfer of Shares/Convertible Debentures, by way of Sale, from a Person Resident in India to a Person Resident Outside India and from a Person Resident Outside India to a Person Resident in India

1.1 In order to address the concerns relating to pricing, documentation, payment/ receipt and remittance in respect of the shares/convertible debentures of an Indian company, in all sectors, transferred by way of sale, the parties involved in the transaction shall comply with the guidelines set out below.

1.2 Parties involved in the transaction are (a) seller (resident/non-resident), (b) buyer (resident/non-resident), (c) duly authorized agent/s of the seller and/or buyer, (d) Authorised Dealer bank (AD) branch and (e) Indian company, for recording the transfer of ownership in its books.

2. Pricing Guidelines

2.1 The under noted pricing guidelines are applicable to the following types of transactions:

Price of shares transferred by way of sale by resident to a non-resident where the shares of an Indian company are:

(a) not listed on a recognized stock exchange in India, shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant

V) Main Provisions related to Transfer of Share as per companies act 2013. (Applicable in case of transfer of shares from RESIDENT TO NON RESIDENT, FOREIGN CITIZEN Also)

1. Instrument for Transfer of Share is compulsory: Section 56 provides that a company shall not register a transfer of shares of, the company, unless a proper transfer deed in Form SH.4 as given in Rule 11 of Companies (Share Capital & Debentures) Rules 2014 duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, along with the certificate relating to the shares, or if no such certificate is in existence, along with the letter of allotment of the shares.

2. Time Period for deposit of Instrument for Transfer: An instrument of transfer of shares i.e. Form SH.4 with the date of its execution specified thereon shall be delivered to the company within sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.

3. Value of share transfer stamps to be affixed on the transfer deed: Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated [deleted] issued by the Ministry of Finance, Department of Revenue, New Delhi.

4. Time limit for issue of certificate on transfer (Section-56(4)): Every company, unless prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall, within One month deliver, the certificates of all shares transferred after the application for the registration of the transfer of any such shares, debentures or debenture stock received.

5. Penalty for Non-compliance: Where any default is made in complying with the provisions related to transfer of shares, the company shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.

6.After receipt of share transfer deed, board shall consider the same. If the documentation for transfer of share is in order, board shall register the transfer by passing a resolution.

Hope this information is useful

Rajgopalan Sripathi
Advocate, Hyderabad
2173 Answers
394 Consultations

5.0 on 5.0

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