The ownership of a company (limited by shares) is held by the shareholders of the Company. The shareholders thus, appoint the Directors to manage the affairs of the Company. Hence, the shareholders are the owners of a company and not the Directors. The transfer of ownership can be accomplished by transferring of shares of the company from one individual or business entity to another.
In a private limited company; share transfer is generally more restricted when compared to a listed company (publicly traded). Usually the entire shares of a private limited company are owned by families or a small group of persons or entities. Most of the Articles of Association (AoA) of Private Limited Companies limit the rights of a shareholder to transfer the company’s shares to an outsider. Therefore, it is important to check the Articles of Association of the company carefully before transferring the shares.
Shareholders being the legal owners of the shares are also owners of the company. They can either be natural persons (also NRI’s) or corporate entities (also foreign nationals or foreign entities).
The shareholders of the company appoint the directors to manage the daily affairs of the company. Directors are not legal owners of the company. But they can also be shareholders and shareholders can also be Directors of the company.
It states the rights and responsibilities of shareholders and Directors. Articles of Association (AoA) can restrict the share transfer in a private limited company.
STEPS TO BE FOLLOWED FOR PROCEDURE OF SHARE TRANSFER
Step 1: Obtain the share transfer deed in the format prescribed.
Step 2: The share transfer deed must be duly signed by the Transferor and Transferee.
Step 3: The share transfer deed must be stamped according to the Indian Stamp Act and Stamp Duty Notification (in force in the concerned State).
Step 4: Get the sign of the witness on the share transfer deed with name, signature and address.
Step 5: Attach the share certificate or the allotment letter with the deed and deliver it to the company.
Step 6: The Company must process the documents and after approval must issue new share certificate in the name of the transferee.