Q.What is meant by transfer of shares? State its essential features.

Transfer of shares is the everyday route by which ownership of a company's shares moves from one willing person to another.

Transfer of shares is one of the two ways — the other being transmission — by which the ownership of a company's shares can change from one person to another. Unlike transmission, which happens automatically on a legal event, transfer is always a deliberate, considered step taken by an existing shareholder who wishes to part with his shares.

Section 44 of the Companies Act, 2013 provides the legal foundation: the shares, debentures or other interest of any member in a company are movable property, transferable in the manner provided by the company's articles. Because shares are property capable of being freely dealt with, Section 58(2) goes further for a public company, declaring its securities ordinarily freely transferable and refusing to enforce, against the company, any private arrangement between members that restricts this freedom.

The essential features of a transfer of shares, gathered from these provisions and from ordinary company practice, are:

1. It is a voluntary act. Both the transferor, who gives up the shares, and the transferee, who takes them on, must consent to the transaction.
2. It usually involves consideration. A price, in money or otherwise, is generally paid by the transferee for the shares.
3. It requires a proper instrument. The transfer must be carried out through a duly executed and stamped instrument of transfer (Form SH-4), not by a mere private letter or oral understanding.
4. It must be registered by the company. The transfer does not bind the company, and the transferee does not become a member, until the company records the change in its register of members.
5. A public company's shares are freely transferable, while a private company's articles usually restrict this freedom through devices such as a pre-emption clause.

Students often describe transfer of shares only as 'selling shares to someone else' without mentioning that it must proceed through a proper instrument of transfer and is not complete until the company itself registers the change.