Share Transfer Services in India
Form SH-4, Demat Transfer, Stamp Duty, ROFR & FC-TRS Advisory
Share transfers in Private Limited Companies are significantly more complex than people expect. AOA restrictions, ROFR compliance, board approval, stamp duty on physical transfers, capital gains for the seller, and FC-TRS filing for non-residents — every transfer has legal, regulatory, and tax dimensions that must be managed correctly before the company can register the change.
Overview
Share Transfer vs Share Allotment — Two Different Transactions
A share transfer and a share allotment both result in someone holding shares — but they are fundamentally different transactions with entirely different compliance requirements.
Share transfer: Existing shares change hands between the current holder (transferor) and a new holder (transferee). No new shares are created — the paid-up capital and total share count stay the same; only who holds them changes. This is what happens in a secondary transaction — a founder selling to an investor, a co-founder exit, a promoter restructuring.
In a startup funding round, the investor typically receives newly allotted shares. In a secondary transaction — where a founder sells some of their existing shares, or a co-founder exits — the transaction is a share transfer. Both are common, and both have distinct compliance requirements. The process for each transfer also depends on whether the shares are held in physical certificate form or in electronic dematerialised (demat) form.
Transfer Routes
Physical Share Transfer (Form SH-4) vs Demat Off-Market Transfer
| Dimension | Physical Transfer (Form SH-4) | Demat Transfer (DP Instruction) |
|---|---|---|
| Applicable to | Shares held in physical certificate form — most Private Limited Companies and companies not yet dematerialised | Shares in electronic demat form — listed companies and eligible Private Limited Companies that have dematerialised under Rule 9B |
| Transfer instrument | Form SH-4 (Share Transfer Deed) — prescribed format, executed on ₹100 stamp paper | Delivery Instruction Slip (DIS) or electronic instruction through the Depository Participant (DP) — no separate transfer deed required |
| Stamp duty | 0.25% of consideration or market value, whichever is higher — affixed as adhesive stamps or by franking | Nil — Finance Act 2019 amended the Indian Stamp Act to exempt electronic transfer of securities through depositories (NSDL/CDSL) |
| Timeline | Board approval within 30 days of SH-4 delivery; new share certificate within 2 months of board approval | Settlement in T+1 for listed shares; based on DP instruction processing for off-market transfers; no board approval required from the depository side |
| AOA restriction check | Required — Private Limited Company AOA must be checked for ROFR, board approval requirements, and lock-in before any transfer | Same — AOA restrictions apply equally to demat transfers; ROFR and board approval in the AOA must be honoured even for demat off-market transfers |
| Capital gains tax (seller) | Unlisted shares: LTCG at 20% with indexation (held >24 months); STCG at slab rate (held ≤24 months) | Listed shares: LTCG at 12.5% above ₹1.25 lakh (held >12 months); STCG at 20% (held ≤12 months). Unlisted demat: same as physical unlisted rules |
| FC-TRS (non-residents) | Required within 60 days of transfer — applies regardless of physical or demat form | Same FC-TRS obligation for demat off-market transfers to or from non-residents |
Form SH-4
Form SH-4 — Requirements for Physical Share Transfer
Form SH-4 is the prescribed Share Transfer Deed under Rule 11 of the Companies (Share Capital and Debentures) Rules 2014 — the mandatory document for every physical share transfer. No other format of transfer agreement or assignment deed can substitute for it. Key requirements:
The Form SH-4 must be printed on stamp paper of at least ₹100 (separate from the stamp duty on the consideration). The transferor must sign — for joint shareholders, all joint holders must sign. The transferor's signature must be witnessed by at least one person with name, address, and signature. Adhesive stamps equal to 0.25% of the consideration or market value (whichever is higher) must be affixed and cancelled, or the form must be franked at a bank or stamp office. The completed Form SH-4, along with the original share certificate, must be delivered to the company within 60 days of the date of execution.
After delivery: the company's board must approve or refuse the transfer by board resolution within 30 days. If the board does not act within 30 days, the transfer is deemed approved. After board approval, the company must issue a new share certificate in the transferee's name within 2 months, cancel the old certificate, and update the Register of Members.
AOA Restrictions
AOA Share Transfer Restrictions — What They Are and How They Must Be Honoured
Private Limited Companies are legally required under Section 2(68) of the Companies Act 2013 to restrict the right to transfer shares in their Articles of Association. Any transfer that bypasses these restrictions is invalid — the company cannot register it, and the purported transferee does not legally become a shareholder even if money has changed hands:
Right of First Refusal (ROFR)
Most common restriction. Before transferring to any outsider, the selling shareholder must first offer shares to existing shareholders at the same price and terms. Existing shareholders have the prescribed AOA period (typically 30–60 days) to exercise the ROFR. If none exercise it, the seller may transfer to the external buyer at the same or higher price. A transfer bypassing ROFR is invalid — the company cannot register it.
Board Approval Requirement
Many AOAs require board approval before any transfer can be registered. The board verifies that ROFR procedures have been followed and that the proposed transferee is eligible under the AOA. Board approval is documented by board resolution — which also serves as the instrument for registering the transfer in the company's books.
Tag-Along & Drag-Along Rights
In investor-backed companies, the AOA and/or Shareholders Agreement typically includes tag-along rights (minority right to join a majority sale) and drag-along rights (majority right to require minority shareholders to sell in a majority exit). These are triggered by specific transfer events and must be honoured before the transfer proceeds.
Lock-In Provisions
SEBI regulations require promoter lock-in for specific periods after an IPO. Investor-backed companies often have contractual lock-in in shareholder agreements restricting transfers for a defined period. Any transfer during lock-in requires the express consent of the party for whose benefit the lock-in was created.
Tax Dimensions
Stamp Duty and Capital Gains Tax on Share Transfer
Stamp duty — physical vs demat: For physical share transfers using Form SH-4, stamp duty is 0.25% of the higher of the consideration or the fair market value of the shares. For demat off-market transfers, the Finance Act 2019 amended the Indian Stamp Act 1899 to exempt electronic transfer of securities through depositories (Article 62A) — nil stamp duty applies. This is one of the significant practical advantages of holding shares in demat form, and an additional reason beyond the Rule 9B mandate to complete dematerialisation.
Capital gains tax for the seller — unlisted vs listed shares:
| Share Type | Holding Period | Tax Classification | Rate |
|---|---|---|---|
| Unlisted shares (most Private Limited Companies) | More than 24 months | Long-Term Capital Gain (LTCG) | 20% with indexation benefit on cost of acquisition |
| Unlisted shares | 24 months or less | Short-Term Capital Gain (STCG) | Applicable income tax slab rate of the seller |
| Listed shares (BSE/NSE) | More than 12 months | LTCG | 12.5% on gains exceeding ₹1.25 lakh per financial year (no indexation) |
| Listed shares | 12 months or less | STCG | 20% |
| Gift of shares | Any | Section 47(iii) exemption for donor | Nil for donor; recipient taxed if FMV exceeds ₹50,000 (unless from specified relatives) |
| Shares on death | Any | Section 47(iii) exemption | Nil; heir inherits deceased's cost of acquisition and holding period |
Capital gains tax is computed on the profit made — the difference between the sale consideration and the cost of acquisition (adjusted for indexation where applicable). We compute the capital gains position before the transfer is executed, so the seller has a clear view of post-tax proceeds and the transfer price reflects the tax reality.
FEMA Compliance
Form FC-TRS — When Non-Residents Are Involved in a Share Transfer
Form FC-TRS (Foreign Currency Transfer of Shares) is the RBI reporting form required whenever shares of an Indian company are transferred between a resident and a non-resident — in either direction. It must be filed on the FIRMS (Foreign Investment Reporting and Management System) portal within 60 days of the date of transfer.
FC-TRS is required for: a resident selling to a non-resident; a non-resident investor exiting by selling to a resident Indian; and certain non-resident to non-resident transfers depending on the FEMA sector classification. It applies regardless of whether the transfer is physical (Form SH-4) or demat (off-market instruction).
The filing requires: names, addresses, and nationalities of transferor and transferee; number and class of shares transferred; transfer price; fair market value of shares at transfer (valued using DCF or NAV method, certified by a CA or Merchant Banker); and confirmation that the transfer price is within FEMA-prescribed pricing guidelines. The filing is done by the Authorised Dealer bank of the resident party.
Our Process
How We Handle Share Transfer Engagements — 7 Steps
From AOA review to Register of Members update and FC-TRS filing, the engagement covers every step for a legally valid and fully compliant transfer:
Transfer Feasibility & AOA Restriction Check
ROFR Process Management
Form SH-4 Preparation & Stamping (Physical Transfers)
Demat Off-Market Transfer Instructions (Demat Transfers)
Board Resolution for Transfer Approval
Share Certificate Update & Register of Members
FC-TRS & FEMA Compliance (Non-Resident Transfers)
Related Services
Share Transfer Often Connects to These Engagements
FAQ
Frequently Asked Questions — Share Transfer in India
What is Form SH-4 and how is it used for share transfer?
What is the stamp duty on share transfer in India?
What is ROFR in share transfers and how does it work?
Does a Private Limited Company need board approval for every share transfer?
When is FC-TRS filing required for a share transfer?
Ready to transfer shares in your company?
Form SH-4, ROFR compliance, stamp duty, capital gains advisory, or FC-TRS for non-residents — N D Savla & Associates provides complete share transfer services across India.
Get in TouchShare Transfer Services in India
Form SH-4, Demat Transfer, Stamp Duty, ROFR & FC-TRS Advisory
Share transfers in Private Limited Companies are significantly more complex than people expect. AOA restrictions, ROFR compliance, board approval, stamp duty on physical transfers, capital gains for the seller, and FC-TRS filing for non-residents — every transfer has legal, regulatory, and tax dimensions that must be managed correctly before the company can register the change.
Overview
Share Transfer vs Share Allotment — Two Different Transactions
A share transfer and a share allotment both result in someone holding shares — but they are fundamentally different transactions with entirely different compliance requirements.
Share transfer: Existing shares change hands between the current holder (transferor) and a new holder (transferee). No new shares are created — the paid-up capital and total share count stay the same; only who holds them changes. This is what happens in a secondary transaction — a founder selling to an investor, a co-founder exit, a promoter restructuring.
In a startup funding round, the investor typically receives newly allotted shares. In a secondary transaction — where a founder sells some of their existing shares, or a co-founder exits — the transaction is a share transfer. Both are common, and both have distinct compliance requirements. The process for each transfer also depends on whether the shares are held in physical certificate form or in electronic dematerialised (demat) form.
Transfer Routes
Physical Share Transfer (Form SH-4) vs Demat Off-Market Transfer
| Dimension | Physical Transfer (Form SH-4) | Demat Transfer (DP Instruction) |
|---|---|---|
| Applicable to | Shares held in physical certificate form — most Private Limited Companies and companies not yet dematerialised | Shares in electronic demat form — listed companies and eligible Private Limited Companies that have dematerialised under Rule 9B |
| Transfer instrument | Form SH-4 (Share Transfer Deed) — prescribed format, executed on ₹100 stamp paper | Delivery Instruction Slip (DIS) or electronic instruction through the Depository Participant (DP) — no separate transfer deed required |
| Stamp duty | 0.25% of consideration or market value, whichever is higher — affixed as adhesive stamps or by franking | Nil — Finance Act 2019 amended the Indian Stamp Act to exempt electronic transfer of securities through depositories (NSDL/CDSL) |
| Timeline | Board approval within 30 days of SH-4 delivery; new share certificate within 2 months of board approval | Settlement in T+1 for listed shares; based on DP instruction processing for off-market transfers; no board approval required from the depository side |
| AOA restriction check | Required — Private Limited Company AOA must be checked for ROFR, board approval requirements, and lock-in before any transfer | Same — AOA restrictions apply equally to demat transfers; ROFR and board approval in the AOA must be honoured even for demat off-market transfers |
| Capital gains tax (seller) | Unlisted shares: LTCG at 20% with indexation (held >24 months); STCG at slab rate (held ≤24 months) | Listed shares: LTCG at 12.5% above ₹1.25 lakh (held >12 months); STCG at 20% (held ≤12 months). Unlisted demat: same as physical unlisted rules |
| FC-TRS (non-residents) | Required within 60 days of transfer — applies regardless of physical or demat form | Same FC-TRS obligation for demat off-market transfers to or from non-residents |
Form SH-4
Form SH-4 — Requirements for Physical Share Transfer
Form SH-4 is the prescribed Share Transfer Deed under Rule 11 of the Companies (Share Capital and Debentures) Rules 2014 — the mandatory document for every physical share transfer. No other format of transfer agreement or assignment deed can substitute for it. Key requirements:
The Form SH-4 must be printed on stamp paper of at least ₹100 (separate from the stamp duty on the consideration). The transferor must sign — for joint shareholders, all joint holders must sign. The transferor's signature must be witnessed by at least one person with name, address, and signature. Adhesive stamps equal to 0.25% of the consideration or market value (whichever is higher) must be affixed and cancelled, or the form must be franked at a bank or stamp office. The completed Form SH-4, along with the original share certificate, must be delivered to the company within 60 days of the date of execution.
After delivery: the company's board must approve or refuse the transfer by board resolution within 30 days. If the board does not act within 30 days, the transfer is deemed approved. After board approval, the company must issue a new share certificate in the transferee's name within 2 months, cancel the old certificate, and update the Register of Members.
AOA Restrictions
AOA Share Transfer Restrictions — What They Are and How They Must Be Honoured
Private Limited Companies are legally required under Section 2(68) of the Companies Act 2013 to restrict the right to transfer shares in their Articles of Association. Any transfer that bypasses these restrictions is invalid — the company cannot register it, and the purported transferee does not legally become a shareholder even if money has changed hands:
Right of First Refusal (ROFR)
Most common restriction. Before transferring to any outsider, the selling shareholder must first offer shares to existing shareholders at the same price and terms. Existing shareholders have the prescribed AOA period (typically 30–60 days) to exercise the ROFR. If none exercise it, the seller may transfer to the external buyer at the same or higher price. A transfer bypassing ROFR is invalid — the company cannot register it.
Board Approval Requirement
Many AOAs require board approval before any transfer can be registered. The board verifies that ROFR procedures have been followed and that the proposed transferee is eligible under the AOA. Board approval is documented by board resolution — which also serves as the instrument for registering the transfer in the company's books.
Tag-Along & Drag-Along Rights
In investor-backed companies, the AOA and/or Shareholders Agreement typically includes tag-along rights (minority right to join a majority sale) and drag-along rights (majority right to require minority shareholders to sell in a majority exit). These are triggered by specific transfer events and must be honoured before the transfer proceeds.
Lock-In Provisions
SEBI regulations require promoter lock-in for specific periods after an IPO. Investor-backed companies often have contractual lock-in in shareholder agreements restricting transfers for a defined period. Any transfer during lock-in requires the express consent of the party for whose benefit the lock-in was created.
Tax Dimensions
Stamp Duty and Capital Gains Tax on Share Transfer
Stamp duty — physical vs demat: For physical share transfers using Form SH-4, stamp duty is 0.25% of the higher of the consideration or the fair market value of the shares. For demat off-market transfers, the Finance Act 2019 amended the Indian Stamp Act 1899 to exempt electronic transfer of securities through depositories (Article 62A) — nil stamp duty applies. This is one of the significant practical advantages of holding shares in demat form, and an additional reason beyond the Rule 9B mandate to complete dematerialisation.
Capital gains tax for the seller — unlisted vs listed shares:
| Share Type | Holding Period | Tax Classification | Rate |
|---|---|---|---|
| Unlisted shares (most Private Limited Companies) | More than 24 months | Long-Term Capital Gain (LTCG) | 20% with indexation benefit on cost of acquisition |
| Unlisted shares | 24 months or less | Short-Term Capital Gain (STCG) | Applicable income tax slab rate of the seller |
| Listed shares (BSE/NSE) | More than 12 months | LTCG | 12.5% on gains exceeding ₹1.25 lakh per financial year (no indexation) |
| Listed shares | 12 months or less | STCG | 20% |
| Gift of shares | Any | Section 47(iii) exemption for donor | Nil for donor; recipient taxed if FMV exceeds ₹50,000 (unless from specified relatives) |
| Shares on death | Any | Section 47(iii) exemption | Nil; heir inherits deceased's cost of acquisition and holding period |
Capital gains tax is computed on the profit made — the difference between the sale consideration and the cost of acquisition (adjusted for indexation where applicable). We compute the capital gains position before the transfer is executed, so the seller has a clear view of post-tax proceeds and the transfer price reflects the tax reality.
FEMA Compliance
Form FC-TRS — When Non-Residents Are Involved in a Share Transfer
Form FC-TRS (Foreign Currency Transfer of Shares) is the RBI reporting form required whenever shares of an Indian company are transferred between a resident and a non-resident — in either direction. It must be filed on the FIRMS (Foreign Investment Reporting and Management System) portal within 60 days of the date of transfer.
FC-TRS is required for: a resident selling to a non-resident; a non-resident investor exiting by selling to a resident Indian; and certain non-resident to non-resident transfers depending on the FEMA sector classification. It applies regardless of whether the transfer is physical (Form SH-4) or demat (off-market instruction).
The filing requires: names, addresses, and nationalities of transferor and transferee; number and class of shares transferred; transfer price; fair market value of shares at transfer (valued using DCF or NAV method, certified by a CA or Merchant Banker); and confirmation that the transfer price is within FEMA-prescribed pricing guidelines. The filing is done by the Authorised Dealer bank of the resident party.
Our Process
How We Handle Share Transfer Engagements — 7 Steps
From AOA review to Register of Members update and FC-TRS filing, the engagement covers every step for a legally valid and fully compliant transfer:
Transfer Feasibility & AOA Restriction Check
ROFR Process Management
Form SH-4 Preparation & Stamping (Physical Transfers)
Demat Off-Market Transfer Instructions (Demat Transfers)
Board Resolution for Transfer Approval
Share Certificate Update & Register of Members
FC-TRS & FEMA Compliance (Non-Resident Transfers)
Related Services
Share Transfer Often Connects to These Engagements
FAQ
Frequently Asked Questions — Share Transfer in India
What is Form SH-4 and how is it used for share transfer?
What is the stamp duty on share transfer in India?
What is ROFR in share transfers and how does it work?
Does a Private Limited Company need board approval for every share transfer?
When is FC-TRS filing required for a share transfer?
Ready to transfer shares in your company?
Form SH-4, ROFR compliance, stamp duty, capital gains advisory, or FC-TRS for non-residents — N D Savla & Associates provides complete share transfer services across India.
Get in Touch