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In Private Limited Company, the ownership is calculated by the shareholders of the company. If you want to induct new investors or transfer the ownership of the company then the shares of the private limited company would have to be transferred. This article focuses on the share transfer procedure in Private Limited Company.
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A private limited company is a closed corporation of members very similar to a partnership Firm. Hence, the share transfer in a private limited company can be restricted by the AOA (Article of Association). Therefore, the review of Article of Association is a must at the first step to begin the share transfer procedure.
The restrictions have been imposed on the right of the shareholders to transfer shares are usually in two forms:
The restriction contained the Articles of Association would be considered as legally binding only. Any of the private agreement between the shareholders will not bind either on the company or on the shareholders. Moreover, Articles of association can only restrict the share transfer. The right to transfer the shares of a private limited company cannot be a total prohibition/ban on the share transferability.
There are certain steps which should be followed to initiate the share transfer procedure. These are given below:
If in case, any of the present shareholders come forward to purchase the shares then such shares are allowed to allot them. When no present shareholder is interested or excess shares are available then the same can be transferred to the outsider.
If any of the present shareholders come forward for the purchase of shares, such shares must be allotted to them. In case no present shareholder is interested or excess shares are available, the same can be transferred to the outsider.
Following are the steps to be followed while transferring shares of a Private Limited Company:
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