How to Transfer Shares in a Private Company: SH-4, Stamp Duty and Demat Rules

What does the AoA say?

A private company's articles must restrict the right to transfer shares, and most contain pre-emption (right of first refusal) clauses, board approval and sometimes tag-along and drag-along rights from a shareholders' agreement. Read both documents before agreeing a deal. A transfer made in breach of the AoA can be refused by the board or challenged later.

Investor-backed companies often need written consent from specific investors before founders sell. Get these waivers in writing, signed before the deed is executed, and refer to them in the board resolution approving the transfer.

How is the price set?

Buyer and seller can agree any commercial price, but tax rules look at fair market value. Under the 1961 Act, a seller of unlisted shares below fair value could be taxed as if sold at fair value, and a buyer paying less than fair value could be taxed on the difference as income from other sources. Corresponding provisions continue under the Income-tax Act 2025, so obtain a valuation report from a registered valuer or merchant banker and keep it on file.

Where a non-resident is the buyer or seller, FEMA pricing guidelines apply: a resident cannot sell to a non-resident below fair value or buy from a non-resident above it. The AD bank checks this when you file FC-TRS.

What documents are needed?

The paperwork is short but must be precise. Errors in folio numbers, distinctive share numbers or mismatched signatures are the most common reasons a board refuses or delays registering a transfer.

• Form SH-4 signed by transferor and transferee, with witness
• Original share certificate (for physical shares)
• Proof of stamp duty payment
• Valuation report
• PAN and KYC of the transferee
• Investor waivers or consents under the SHA
• Board resolution approving and registering the transfer

How does the demat requirement change things?

Rule 9B of the Prospectus and Allotment of Securities Rules required private companies, other than small companies, to dematerialise their securities by 30 June 2025. After that date, a holder of such a company must hold shares in demat form before transferring them, and transfers happen through depository participants. A small company is now one with paid-up capital up to ₹10 crore and turnover up to ₹100 crore, so many startups are still outside the mandate.

Producer companies have a separate, later deadline. If your company has crossed the small company limits, check its ISIN status and the demat status of the selling shareholder with your company secretary before signing any transfer.

Timeline and filings

Section 56 requires the deed to be delivered to the company within 60 days of execution. The company must register the transfer and deliver the endorsed or new certificate within one month of receiving the deed. There is no ROC form for an ordinary transfer, but the change appears in the next annual return (MGT-7 or MGT-7A). If the transfer makes someone a significant beneficial owner, BEN-1 and BEN-2 filings follow.

Common mistakes

Founders often sell before checking investor consents, pay stamp duty on the wrong value, or forget the 60-day window and have to re-execute the deed. Another frequent error is a transfer at a round-number price far below a recent funding valuation, which creates tax exposure for both sides.

Step by step

1. 1Read AoA and SHA

   Identify pre-emption, consent and lock-in clauses.

2. 2Offer to existing holders

   Follow the right of first refusal procedure if the AoA requires it.

3. 3Get valuation

   Obtain a fair value report from a registered valuer or merchant banker.

4. 4Execute SH-4

   Sign the deed, pay 0.015% stamp duty and attach the certificate.

5. 5Lodge with company

   Deliver the deed within 60 days of execution.

6. 6Board approval

   Board approves the transfer and updates the register of members.

7. 7Issue certificate or demat credit

   Endorse the certificate or complete transfer through depositories.

8. 8Report if cross-border

   File FC-TRS through the AD bank when a non-resident is involved.