Share Transfer via Form SH-4 — Selling Founder/Investor Shares
Quick Summary
Transferring shares in an Indian private limited company isn't as simple as signing a document — it requires Form SH-4, stamp duty under the Indian Stamp Act, 1899, board approval, and updates to your Register of Members. This article walks through the complete process.
The Legal Breakdown / Why It Matters
Form SH-4 — The Share Transfer Deed prescribed under Section 56(1) of the Companies Act, 2013 read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014. Without an executed and stamped SH-4, no share transfer is legally valid.
The Mandatory Steps
- Execute Form SH-4 between transferor and transferee, signed by both, with a witness.
- Pay Stamp Duty at 0.25% of consideration or FMV (whichever higher) under Article 62 of Schedule I of the Indian Stamp Act, 1899.
- Lodge SH-4 with the company within 60 days of execution along with the original share certificate.
- Board approves the transfer via resolution under Section 56.
- Endorse the share certificate in the name of the transferee.
- Update Register of Members (MGT-1) with the transferee's details.
Important Restrictions in Private Companies
Under Section 2(68), private limited companies must include in their AOA a restriction on share transferability. Most AOAs require:
- Right of First Refusal (ROFR) to existing shareholders.
- Board approval before any transfer to outsiders.
- Promoter lock-in during investor lock-up periods (SHA-driven).
Stamp Duty Calculation
| Consideration | Stamp Duty |
|---|---|
| Equity shares transferred at FMV ₹1,00,000 | 0.25% = ₹250 |
| Equity shares transferred as gift (no consideration) | 0.25% of FMV |
| Transfer to a relative (limited cases) | Concessional rate (state-specific) |
How to Do It on Founding Legals
- Step 1: Go to Cap Table → Share Transfer → New Transfer. Select transferor and transferee from existing shareholders or add a new one.
- Step 2: Enter transfer details: number of shares, consideration, FMV. The platform calculates the 0.25% stamp duty automatically.
- Step 3: Check ROFR and lock-in compliance. The platform cross-references your AOA and SHA terms, and auto-generates ROFR notices if needed.
- Step 4: Generate Form SH-4, stamp it via our e-stamping gateway, and route for e-signature.
- Step 5: Once executed, the platform updates MGT-1 automatically, digitally endorses the share certificate, and stores files in the Vault.
Under Section 56(1), the executed SH-4 must be lodged with the company within 60 days of execution. Miss this, and the transfer is invalid — even if both parties have agreed. The shares legally remain with the transferor, and the consideration may be treated as an "unsecured loan." Always lodge immediately.
If you're anticipating multiple founder/early-employee secondary sales over 12 months, get all existing shareholders to sign a blanket ROFR Waiver at the start. It saves you 30-day notice cycles for each transfer — and Indian VCs are usually open to this if structured around their portfolio reviews.