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Issue and Transfer of Shares

  • Issuing shares allows the company to raise fresh funds for expansion or debt repayment.
  • Facilitates the entry of new strategic partners or venture capitalists.
  • Share transfer allows existing promoters or investors to exit or partially liquidate their holdings.
  • Provides a legal mechanism for transferring ownership to family members or successors.
  • Enables the allotment of shares under ESOPs to reward and retain key talent.
  • Proper filing ensures that the legal ownership reflected in the MCA database matches the actual holdings.
  • Formalizing transfers through the company prevents future ownership conflicts.
  • Clearly documented share ownership can be used as security for obtaining personal or business credit.

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7 Years

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3622 +

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10 +

Awards Gained

Trusted Clients Icon

144 k +

Trusted Clients

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Queries Solved

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3622 +

Cases Solved

Awards Gained Icon

10 +

Awards Gained

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144 k +

Trusted Clients

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Queries Solved

Overview

The "trigger" for Issue of Shares occurs under Section 62 (Rights Issue/Preferential Allotment) or Section 42 (Private Placement) when the Board passes a resolution to allot new shares. This increases the total paid-up capital of the company. In the 2026 MCA V3 environment, this requires an upfront Valuation Report from a Registered Valuer. The funds must be received in a separate bank account before the allotment, and the event must be reported via e-Form PAS-3.

The "trigger" for Transfer of Shares occurs under Section 56 when an existing shareholder (Transferor) sells or gifts their shares to another person (Transferee). Unlike an issue of shares, this does not change the company's total capital; it only changes who owns the shares. This is an internal corporate action that does not require an immediate MCA form like PAS-3, but it must be recorded in the Register of Members (MGT-1) and reported in the Annual Return (MGT-7).

For the FY 2025–26 cycle, both processes are subject to Audit Trail (Edit Log) requirements. The accounting software must log the exact date the transfer deed (SH-4) was executed and the date the Board approved the transfer. Similarly, for allotments, the log must show the receipt of share application money to prevent backdating of ownership.

Document Required

Documents
  • 1 Permanent Account Number (PAN) Card of the Company.
  • 2 Aadhaar Card of the Transferor/Allottee.
  • 3 PAN Card of the Transferee/Allottee.
  • 4 Form SH-4 (Transfer Deed) duly stamped and signed (for Transfers).
  • 5 Share Certificate(s) in original (for Transfers) or fresh (for Allotment).
  • 6 Valuation Report from a Registered Valuer (mandatory for Allotments).
  • 7 Certified Board Resolution approving the allotment or transfer.
  • 8 Proof of Payment of consideration (Bank statement/Challan).
  • 9 Letter of Offer (for Rights Issue or Private Placement).

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Procedural Steps

Activity Short Description Governing Rule
Share Allotment Issuing new shares to increase capital. Section 42/62
Share Transfer Executing Form SH-4 (Transfer Deed) between two parties. Section 56
Stamp Duty Payment of duty on the value of shares (allotment or transfer). State Stamp Act
Board Approval Resolution to approve the allotment or register the transfer. Internal Governance

Filing & Recording Requirements

Form/Document Trigger/Description Countdown Deadline
PAS-3 Return of Allotment (Only for Issue of Shares). 30 Days from Allotment
SH-4 Securities Transfer Form (Only for Transfer). 60 Days from Execution
Share Certificate Issuance of new certificates or endorsement of old ones. 60 Days from Board Approval
MGT-7 Reporting the year's transfers in the Annual Return. 60 Days from AGM

Penalty and Non-compliance Risk

Penalty and Non-compliance Risk

Failure to record a transfer means the buyer has no legal rights in the company.
High fees for late filing of PAS-3.
Penalties up to 10 times the duty amount for unstamped deeds.
Risks for directors if allotment norms (Section 42) are violated.
Leading to "Active" status deactivation.
For directors approving transfers without valid SH-4 forms.

FAQs

Does the company file a form for share transfer?

No, share transfers are recorded internally in the Register of Members and reported once a year in the Annual Return (MGT-7).

What is the stamp duty for share transfer?
Is a Valuation Report required for transfer?
Can we transfer shares to a minor?
What is Form PAS-3?
How long does it take to register a transfer?
What happens if the original share certificate is lost?
What is the "Audit Trail" requirement?
Can a director refuse a share transfer?
Is MGT-14 required for share issue?

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