How Share Transfer happens in Unlisted Companies?

Written By:
March 28, 2024
How Share Transfer happens in Unlisted Companies?

Unlisted companies, also known as private companies, are not traded on public stock exchanges. Their shares are held by a limited number of shareholders, often founders, employees, or private investors.

In a private limited company, the transfer of shares plays a pivotal role in determining ownership and facilitating changes in the company's structure.

What do you mean by a Share Transfer?

A share transfer refers to the voluntary transfer of ownership of a share from one party to another. This process involves the exchange of ownership rights of a share, allowing one party to transfer their ownership to another individual or entity.

In the context of private limited companies, share transfers are essential for changing ownership, bringing in new investors, or adjusting the shareholding structure of the company. While the ability to transfer shares is generally unrestricted, private limited company shares may be subject to specific limitations outlined in the company's Articles of Association (AOA) or shareholders' agreement.

Share transfers play a crucial role in determining ownership, investment, and business dynamics within a company.

What are Unlisted Shares?

Unlisted shares refer to the equity shares of a company that are not listed or traded on a recognized stock exchange. These shares are typically held by a small group of individuals or entities and are not available for public trading. Unlisted shares are considered less liquid than listed shares, as they cannot be easily bought or sold on public markets.

What are Unlisted Companies?

Unlisted companies are private or closely held companies that have not gone through the process of listing their shares on a stock exchange. These companies are not subject to the same regulatory requirements and public disclosure obligations as listed companies. Unlisted companies can range from small startups to large, well-established businesses operating in various sectors.

How to Transfer Shares of Unlisted Companies?

To transfer shares in an unlisted company, the following steps should be followed:

1. Obtain the share transfer form from the company.

2. Fill out the form with the required details, such as the names of the transferor (seller) and transferee (buyer), the number of shares being transferred, and the consideration (price) for the transfer.

3. Obtain the signatures of the transferor, transferee, and witnesses on the share transfer form.

4. Submit the share transfer form, along with the original share certificates, to the company's board of directors for approval.

5. Once approved, the company will cancel the old share certificates and issue new ones in the name of the transferee.

6. The company will update its statutory registers, such as the register of members and the register of share transfers, to reflect the change in ownership.

Steps Involved in Share Transfer in unlisted companies

The steps involved in the share transfer process in unlisted companies are crucial for ensuring a smooth and legally compliant transaction.

Here is a detailed guide on the key steps typically involved in transferring shares in unlisted companies:

1. Agreement for the Sale of Shares

The seller and buyer need to agree on the sale and purchase of shares. While there is no legal requirement for a formal agreement, it is common practice to document the transaction in a written contract, such as a share purchase agreement (SPA).

2. Transfer Form

A stock transfer form is used to transfer existing shares, containing details of the seller, buyer, number of shares, and payment considerations. Stamp duty must be paid unless an exception applies, and the form is then submitted to the company for registration.

3. Approval of Registration

When the stock transfer form is submitted to the company, the board of directors must approve and register the transfer as per statutory obligations. The board's decision is crucial in finalizing the transfer process.

4. Issuing a Share Certificate to the Transferee

Following registration, the company issues a new share certificate to the buyer within a specified timeframe. The share certificate serves as evidence of ownership for the transferee and must be updated in the company's records.

5. Update Company Records

The company needs to update its register of transfers and persons with significant control (PSC register) or legal records post-transfer. Additionally, updating shareholders' information with Companies House as part of regulatory compliance is essential.

6. Compliance with Transfer Restrictions

Shareholders should adhere to any transfer restrictions outlined in the company's articles of association (AOA) or shareholders' agreement. Common restrictions may include prohibitions on transfer, pre-emption rights, or directorial approval requirement

7. Seek Professional Advice

It is advisable for shareholders engaging in share transfers to seek professional advice to navigate potential risks, tax implications, and legal considerations effectively.

Professional guidance can help ensure compliance with regulatory requirements and mitigate any challenges that may arise during the transfer process.

Risks related to Share Transfers in Unlisted Companies

The potential risks and considerations of share transfers in unlisted companies include:

1. Sale Falling Through

There is a risk that the sale could fall through, emphasizing the importance of having a comprehensive agreement in place that outlines all terms and conditions of the sale.

2. Liability for Company Debts

If the company becomes insolvent and cannot pay its debts, shareholders who sell their shares may become liable for these debts, posing financial risks.

3. Tax Implications

Share transfers may have tax implications for both the seller and the buyer, necessitating professional advice to handle potential tax obligations effectively.

4. Transfer Restrictions

Shareholders should be aware of any transfer restrictions outlined in the company's articles of association or shareholders' agreement, which may impact the transfer process.

5. Recordkeeping and Compliance

Failure to record share transfers accurately can lead to challenges in tracking ownership structure, calculating financial liabilities, and complying with regulatory requirements, potentially affecting the company's ability to raise funds or manage tax obligations.

6. Shareholder Approval

Shareholders' approval may be required before issuing or transferring shares, highlighting the need for compliance with pre-emption rights and shareholder agreements.


In conclusion, the process of transferring shares in unlisted companies, particularly private limited companies, is a critical aspect of ownership changes and investment dynamics. Share transfers involve the voluntary exchange of ownership rights from one party to another, subject to specific regulations and restrictions outlined in the company's Articles of Association (AOA) or shareholders' agreement.

Understanding the steps involved in share transfers, compliance with transfer restrictions, seeking professional advice, and being aware of potential risks like sale falling through, tax implications, and liability for company debts are essential considerations for shareholders engaging in share transfers in unlisted companies.

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