Meena pays Ravi for 1,000 shares, gets a signed transfer deed, and considers herself a shareholder. She is not. Until the company's board approves the transfer and her name goes into the register of members, Ravi is still the legal owner — and a buyer who does not know this can be left holding a receipt.
Shares in a private company transfer through Form SH-4, stamped at 0.015% of the consideration or market value, delivered to the company with the share certificate within 60 days — and ownership passes only when the board registers it and the register of members is updated.
The bottom line
What it costs: stamp duty of 0.015% of the consideration or market value, whichever is higher. On Rs. 5,00,000 of shares, that is Rs. 75.
The deadline: 60 days from execution to deliver the SH-4 and the share certificate to the company.
What it does not settle: the seller's capital gains position, or whether the price is defensible. Transfer below fair market value can attract tax in the buyer's hands.
Why private company shares are different
Shares are movable property, but the definition of a private company under the Companies Act, 2013 requires its articles to restrict the right to transfer shares. That restriction is the whole reason this process has steps a listed-market trade does not.
Most private companies include a right of first refusal in their Articles of Association: a shareholder wanting to sell must first offer the shares to the existing members before going to an outsider. Read the articles before starting anything. Ignoring a ROFR can make the entire transfer voidable, which is a discovery nobody wants to make after the money has moved.
Form SH-4
The instrument of transfer. It must be duly stamped, dated and signed by both the transferor and the transferee, and delivered to the company with the share certificate within 60 days of execution.
Where the share certificate is not available, the application for registration of the transfer can be submitted with the allotment letter instead.
Stamp duty
Share transfers attract stamp duty at 0.015%, which is 15 paise per Rs. 100, on the consideration or the market value of the shares, whichever is higher.
For physical shares this is paid by affixing stamps or through franking. For demat shares the depository collects it automatically. Underpaying is a common and consequential error, because an inadequately stamped SH-4 is inadmissible as evidence — exactly when you need it.
The procedure
- Notice and ROFR. The seller notifies the company, and the board offers the shares to existing members as the articles require.
- Execute the SH-4. With a buyer settled, both parties sign, with the correct stamp duty and a correct date.
- Submit to the company with the share certificate, within 60 days.
- Board approval. The board considers the transfer at a meeting and passes a resolution registering it.
- New certificate. The company endorses or issues a fresh certificate in the buyer's name within one month.
- Update the register of members to record the new ownership.
The register of members is the moment of truth
A transfer completes when the company registers it and enters the buyer in the register of members. Until then the seller remains the legal owner, whatever the signed deed says and whatever has been paid.
This is why prompt board approval and record updating matter as much as the paperwork, and why a buyer should chase both rather than filing the SH-4 away and assuming it is done.
Transmission is not transfer
Transfer is voluntary, between a willing seller and buyer. Transmission happens by operation of law — shares passing to legal heirs on a shareholder's death, or to an official assignee on insolvency.
Transmission needs no SH-4 and attracts no stamp duty. It needs a death certificate, a succession certificate or probate, depending on the circumstances.
Can the board refuse?
Yes, within limits. The board of a private company may refuse to register a transfer, but only for reasons rooted in the articles, and it must communicate the refusal with reasons within 30 days.
A transferee unfairly refused can appeal to the National Company Law Tribunal. The power cannot be used arbitrarily or to entrench existing management — it must be exercised in good faith and in the company's interest.
What the buyer should collect
- The duly stamped and signed SH-4, correctly dated
- The original share certificate
- A copy of the board resolution approving the transfer
- The new certificate issued in the buyer's name
- A certified extract of the updated register of members
For any investment of consequence, add diligence: the financials, charges registered against the company, litigation, and statutory filings, all before paying rather than after.
The tax position
Selling shares triggers capital gains for the seller. For unlisted shares, gains are long-term where the shares were held for more than 24 months, attracting a lower rate with indexation, and short-term otherwise, taxed at the seller's slab rate.
There is a second exposure that surprises buyers. Where shares transfer for less than fair market value, anti-abuse provisions of the Income Tax Act can tax the difference in the buyer's hands. Pricing the transfer at a defensible value protects both sides.
A worked example
Ravi sells 1,000 shares of a private company to Meena for Rs. 5,00,000. He signs an SH-4 and pays stamp duty of 0.015% of Rs. 5,00,000, which is Rs. 75. Meena submits the SH-4 with the share certificate to the company within 60 days.
The board meets, approves the transfer, cancels Ravi's certificate, issues a fresh one to Meena and updates the register of members. Only at that last step does Meena legally become a shareholder — not when she paid Ravi.
Partly paid shares, and nomination
Where the shares are partly paid, meaning the full face value has not yet been paid to the company, the SH-4 must record the transferee's agreement to take on the unpaid liability, and the company gives notice to the transferee before registering the transfer.
Separately, a shareholder can file a nomination in Form SH-13 naming who receives the shares on their death. A registered nomination simplifies transmission and overrides a will in respect of those shares, which is a good reason to keep nominations current and a better reason to make sure they say what you think they say.
Demat is a smoother route
Where shares are held in dematerialised form the mechanics change entirely. The transfer happens electronically through the depository, NSDL or CDSL, via the depository participants of both parties, and stamp duty is collected automatically.
That removes the risk of lost certificates, forged signatures and stamp duty errors in one step, which is why many growing private companies dematerialise — and why certain classes of company are now required to issue and transfer securities only in demat form.
Frequently asked questions
When do I actually become the owner? When the board registers the transfer and your name is entered in the register of members. Not on payment, and not on signing the SH-4.
How much stamp duty is payable? 0.015% of the consideration or the market value of the shares, whichever is higher.
What is the deadline for submitting the SH-4? Sixty days from the date of execution, delivered to the company along with the share certificate.
Can the company refuse my transfer? Only for reasons grounded in its articles, communicated with reasons within 30 days. An unfair refusal can be appealed to the NCLT.
Do I need an SH-4 if I inherited the shares? No. That is transmission, which needs a death certificate, succession certificate or probate rather than a transfer deed, and attracts no stamp duty.
What if the share certificate is lost? The application for registration of the transfer can be submitted with the allotment letter instead.