Transfer of Shares

Transfer of Shares

Transfer of shares refers to handing over the titles of shares from one man to another. But before the shares can be transferred, the company will have to be notified. Or else, the transfer of shares will not be deemed legal. The company will need to approve the transfer, and only after that, the transfer of shares can be successful. 

What is a Transfer of Shares? 

When the shareholder of a company hands over his part of the shares to another person, it is called a transfer of shares. A shareholder can transfer his part of shares of the company to any person at any given point in time. The transfer of sale happens when someone sells/gifts his shares, which can be done to create capital for his next investment or to better organise his investment portfolio. 

Understanding Transfer of Shares 

If a shareholder at any point thinks it’s not a great investment or feels these shares are no longer a value to him, he has the right to sell the shares to someone else. By selling the shares, the shareholder gives away his ownership of the shares to another person. This is done in a legalised manner under the observation of the company. Once the transfer is complete, the buyer of the shares becomes the sole owner of the shares in the eyes of the company. 

Importance of Transfer of Shares 

A shareholder can transfer his shares to anyone, irrespective of whether he is a part of the company or not. In other words, you can buy shares from a shareholder if you are not a member of the company whose shares you are buying. Theoretically, the transfer of shares can be done free of cost, but these shares are usually worth a lot of money and so it is hardly transferred freely. Since it involves a lot of money, certain restrictions have been put in place to ensure no one abuses the system. 

These restrictions are a part of the Articles of Incorporation and are well within reasonable limits and allow for a safe and smooth transfer of shares. Firstly, the transfer of shares form needs to be filled up. This form will have all the details regarding the seller/current shareholder, buyer, and the price of shares at which it is being sold. It will also include the type of shares that are being sold and some other bits and pieces of information. 

Every company or corporation may have its own procedures regarding the sale of shares. So, all parties involved in the transfer of shares will be subject to the corporation’s rules and procedures. These rules may also dictate how much the sale price can be. If it’s not a reasonable amount according to the corporation and the IRS, the transfer of shares could be declined. 

Benefits of Transfer of Shares 

By transferring your part of the shares of a company, you absolve yourself of all the rights and liabilities that come with owning the shares. On top of that, you may also make a decent profit by selling your shares. The valuation of shares increases over time and that allows you to profit by selling the shares. How well the company’s products and services perform on the market can have a significant impact on the demand for the shares, which will increase its price. Selling those shares can churn out decent profit. 

Examples of Transfer of Shares 

For a transfer of shares to work, there must be an intermediary that manages the records and all the paperwork between the shareholder, the company and the buyer. These intermediary agent can be a trust corporation, transfer agent, financial institution or even a bank. 

Frequently Asked Questions

Transfer of shares refers to handing over an individual‘s ownership of shares to another individual under the legal supervision of the company whose shares are being sold. To sell or transfer shares, the transfer of shares form will need to be filled up. In this form, the details of the shareholder, the company, the buyer and the type of shares being sold will have to be mentioned. The type of shares sold include: 

  • Bonus Issue: When a company issues additional shares to increase its capital, all shareholders will receive a percentage of the additional shares and these shares are known as bonus shares. 
  • Buy-back Shares: Every shareholder has some stake in the company and the more stake they have, the more control/authority they will have. The more shares a company sells, the less control the company will have. So, in order to gain more control, the company may attempt to buy back some of the shares it sold previously. Hence, the name buy-back shares. 
  • Transfer: Transfer shares are shares that are transferred from one individual to another, whether he is a member of the company or not. 
  • Gift: An individual may choose to gift shares to his loved ones or someone close to him. These types of shares are gifted shares. 

The transfer of shares is a 4-step process. 

  1. Sale of Shares Agreement: In this step, both parties must agree to the sale and purchase of the share. 
  1. Transfer of Shares Form: A form will have to be filled that will contain the details of the current shareholder, the buyer, the company whose shares are being sold, and the type of the share, among other things. 
  1. Approval/ Rejection: It is up to the directors of the board of the company to decide if they wish to approve the transfer of shares. 
  1. Furnishing the Certificate of the Transfer of Shares: Once all the above steps are done, a new certificate will be furnished that will contain the proof of the transfer. 

To transfer shares, the shareholder will have to find a buyer who is ready to purchase the share, fill up the transfer form, and then get the transfer approved by the board of directors of the company whose shares are getting transferred. 

Mutual fund transfer agents record and maintain records of ownership, sale and purchase of mutual funds. 

A transfer agent acts as a liaison that aids the process of the transfer of shares. A broker on the other hand acts as an intermediary that brings the two parties together. 

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