• Private Limited Companies, including those with a single funding round or a single transfer
• Public Limited Companies, listed and unlisted
• One Person Companies, on a change in the sole member or nominee
• Section 8 Companies with share capital
• Wholly-owned subsidiaries and companies with foreign shareholding, which carry an additional FEMA layer
• Companies issuing ESOPs, sweat equity, bonus shares, or shares on conversion of loans or debentures

The obligation does not scale with the size of the transaction. A transfer of one hundred shares between two founders requires the same instrument, the same stamp duty, the same board approval, and the same register entry as a transfer of a controlling block. The most commonly defective transactions we are asked to remediate are the small, informal, intra-family ones — precisely because nobody thought they needed a process.

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Read This First: The Dematerialisation Position

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, inserted in October 2023, requires most private companies to hold and issue securities only in dematerialised form. This is not a future obligation for most companies — the principal deadline has already passed.

What this changes in practice:

• New securities must be issued only in dematerialised form. A physical share certificate cannot validly be issued by a covered company.
• A holder who wishes to transfer securities in a covered company must dematerialise them first. Form SH-4 is not the route; the transfer is executed through the depository system via a Delivery Instruction Slip.
• The company must obtain an ISIN from NSDL or CDSL, appoint a Registrar and Transfer Agent, and reconcile its holdings.
• Rule 9B applies on a rolling basis — it is not a one-time test as at March 2023. A company that grows past the small-company thresholds acquires the obligation with an eighteen-month runway.

Small companies may still use physical certificates and Form SH-4, and the physical process is set out below because it remains live for them — and because the underlying corporate steps are identical in either mode.

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Part One: Allotment of Shares

The routes to issuing shares

Private placement and preferential allotment — Section 42

The route by which almost every funding round is done, and the one with the most unforgiving procedure.

The separate bank account rule is the one that catches growing companies. Money received against a private placement is not the company’s working capital until allotment is complete and PAS-3 has been filed. Spending it before then — on salaries, on a vendor, on anything — is a contravention independent of whether the allotment itself was valid.

The timeline that binds an allotment

Note that PAS-3 and FC-GPR run in parallel on the same allotment, to two different regulators, on two different systems. Filing one does not discharge the other.

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Part Two: Transfer of Shares

Transfer and transmission are not the same thing

Treating a transmission as a transfer — executing an SH-4 signed by a legal heir on behalf of a deceased holder — is a recurring and serious error. A dead person cannot execute a transfer deed.

The transfer process — Section 56

The 60-day delivery rule is frequently missed. An SH-4 executed in January and lodged with the company in May is out of time. Where the instrument is lost or not delivered in time, the company may register the transfer on such indemnity as the Board thinks fit, but this is a remedial route requiring a considered Board decision — not a formality.

Restrictions in the Articles

A private company, by definition under Section 2(68), restricts the right to transfer its shares. That restriction is contractual and binding, and it usually takes one of these forms:

• Right of first refusal — the selling shareholder must first offer the shares to existing members on the same terms
• Right of first offer — the shares must be offered to existing members before being offered externally
• Board discretion to refuse registration of a transfer
• Tag-along and drag-along rights, where a shareholders’ agreement is incorporated into the Articles
• Lock-in provisions on founder or investor shares

A transfer completed in disregard of a pre-emption clause is not saved by a correctly executed SH-4 and a properly stamped instrument. It is a breach of the Articles, actionable by the members whose rights were bypassed, and a standard finding in diligence. The Articles are read before the transfer is negotiated, not after it is signed.

Note also that a restriction is not a prohibition. Articles cannot absolutely prohibit transfer, and a refusal must be exercised on the grounds the Articles provide, not arbitrarily.

Refusal and rectification

Section 59 is the provision under which most shareholding disputes are ultimately fought. It is decided on the register and the instruments behind it — which is why the register of members and the transfer file are not administrative records but the company’s evidence of its own ownership.

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Stamp Duty

The Finance Act, 2019 amended the Indian Stamp Act with effect from 1 July 2020, replacing the earlier state-by-state regime for securities with uniform central rates.

Key points:

• The rate is uniform across all Indian states for securities. No state deviation applies.
• Documents and checklists still citing 0.25% for share transfers are out of date. That was the pre-July 2020 rate and it has not applied for six years.
• For demat transactions, duty is collected automatically by the depository or the stock exchange and remitted to the state.
• For physical transactions in a small company, duty on the issue is paid at the place where the registered office is situated, and on a transfer at the place where the instrument is executed, generally by e-stamping.
• Stamp duty on share certificates is payable within 30 days of issue.
• The valuation base is the consideration or market value, whichever is higher. Understating consideration to reduce duty invites scrutiny under both stamp and income-tax law, and the tax consequence is invariably larger than the duty saved.
• An unstamped or inadequately stamped instrument is inadmissible in evidence under the Indian Stamp Act. A transfer resting on such an instrument cannot be proved in a dispute.

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Pricing, Valuation and Tax

The Companies Act sets the procedure. The Income-tax Act sets the floor and the ceiling — and it does so from both directions.

The practical consequence is a squeeze. A transfer at below fair value is taxed in the transferor’s hands on the fair value they did not receive, and in the transferee’s hands on the discount they did receive. The same transaction is taxed twice on the same shortfall. This is why a family transfer at face value — the most common informal transaction there is — is frequently the most expensive one in the file.

Where a non-resident is involved, a third floor applies: the FEMA pricing rule, under which an issue or transfer to a non-resident must be at not less than fair value and a transfer from a non-resident to a resident at not more than fair value.

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Where Foreign Shareholding Is Involved

Every allotment and every transfer involving a non-resident generates a parallel FEMA filing:

Before any of these, the sector, the entry route, and — following the 2026 amendments to the land-border rule — the beneficial ownership of the investor must be checked. Approval, where required, must be obtained before the money arrives. The FEMA layer is covered in full on our FEMA compliance and FC-GPR / FC-TRS pages.

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Documentation Checklist

For an allotment

• Check of authorised capital against the proposed issue, and Form SH-7 where an increase is required
• Articles of Association, checked for issue authority and any pre-emption on fresh issues
• Registered valuer’s report under Section 247
• Board resolution approving the offer and the offer letter
• Notice of general meeting, explanatory statement, and the special resolution
• Form MGT-14 as filed, with SRN
• Form PAS-4 offer letter, issued to identified persons and serially numbered
• Form PAS-5 record of private placement offers
• Application forms received from allottees
• Separate bank account statement evidencing receipt of application money
• Board resolution allotting the shares, with the list of allottees
• Form PAS-3 as filed, with SRN
• Share certificates in Form SH-1 with stamp duty paid, or the demat credit confirmation
• Entry in the Register of Members within seven days
• Form FC-GPR with FIRC, KYC, valuation certificate, and CS certificate, where a non-resident is involved

For a transfer

• Articles of Association, checked for pre-emption, lock-in, and refusal rights
• Shareholders’ agreement, where one exists
• Evidence of compliance with any right of first refusal or first offer
• Form SH-4, dated and executed by both parties, with stamp duty paid
• Original share certificate surrendered by the transferor, or the demat Delivery Instruction Slip
• Consideration evidence — bank transfer, not cash
• Valuation supporting the price, for tax and, where applicable, FEMA purposes
• Board resolution approving and registering the transfer
• Entry in the Register of Members within seven days
• New share certificate issued within one month, or demat credit
• Cancellation of the old certificate, marked and retained
• Form FC-TRS with consent letter, declarations, and valuation, where a non-resident is involved

For a transmission

• Death certificate, and succession certificate, probate, letters of administration, or legal heir certificate as applicable
• Transmission request from the legal heir or nominee
• Original share certificate
• Form SH-13 nomination, where one was filed
• Indemnity bond and affidavit, where the Board requires them
• Board resolution registering the transmission

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The Real Cost of Getting It Wrong

Consequences that outlast the money

• The transaction may not be provable. An unstamped SH-4, an allotment with no PAS-3, or a register that was never updated leaves the company unable to establish who owns its shares. In a Section 59 rectification petition, that is fatal.
• The next round is repriced or delayed. Diligence reconstructs the cap table from PAS-3 filings, SH-4 instruments, and the register of members. Gaps become warranties, indemnities, escrows, or conditions precedent.
• Section 42 defects are not curable by later filing. A private placement that exceeded 200 persons, or that used the money before PAS-3, is not fixed by filing PAS-3 late. It requires an adjudication or compounding process.
• Founder disputes turn on the paperwork. In almost every shareholder dispute we see, the substantive commercial understanding was clear and the documentation was not. The tribunal decides on the documentation.

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The Process, Step by Step

Allotment

1. Check capacity. Authorised capital sufficient — if not, pass an ordinary resolution and file SH-7 within 30 days. Check the Articles for authority to issue and for any pre-emption on fresh issues.
2. Obtain the valuation. Registered valuer’s report under Section 247, dated before the offer.
3. Convene the Board. Approve the offer, the PAS-4 offer letter, the list of identified persons, and the notice of general meeting.
4. Pass the special resolution at a general meeting, with the explanatory statement disclosing the pricing basis. File MGT-14 within 30 days.
5. Issue PAS-4 to the identified persons and maintain the record in PAS-5.
6. Receive application money into a separate bank account, through banking channels only, from the applicant’s own account.
7. Allot within 60 days by Board resolution. If allotment is not made, refund within 15 days, with 12% interest thereafter.
8. File PAS-3 — within 15 days for a private placement — before touching the money.
9. Update the Register of Members within 7 days and issue share certificates or credit the demat accounts within 2 months.
10. File FC-GPR within 30 days where any allottee is a non-resident, and pay stamp duty on the issue within 30 days.

Transfer

1. Read the Articles and any shareholders’ agreement before the price is agreed. Identify pre-emption, lock-in, tag-along, and consent requirements.
2. Comply with pre-emption, in writing, with evidence of the offer to existing members and their response or waiver.
3. Establish fair value, for stamp duty, for Sections 50CA and 56(2)(x), and — where a non-resident is involved — for the FEMA pricing rule.
4. Execute Form SH-4, dated, signed by both parties, with stamp duty at 0.015% paid — or, for a demat company, initiate the transfer through the depository.
5. Deliver SH-4 to the company within 60 days of execution, with the original share certificate.
6. Board approval and registration of the transfer, with the reasons recorded if it is refused, and notice of refusal within 30 days.
7. Update the Register of Members within 7 days, cancel the old certificate, and issue the new certificate within 1 month.
8. File FC-TRS within 60 days where a non-resident is involved.
9. Report the capital gain in the transferor’s return, and account for Section 56(2)(x) in the transferee’s, where the price is below fair value.

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Mistakes We See Repeatedly

1. Allotting beyond authorised capital. The allotment is void to the extent of the excess. SH-7 comes first, not afterwards.
2. Spending private placement money before PAS-3 is filed. A separate account is not a formality — using the funds early is an independent contravention with a penalty measured against the whole amount raised.
3. Missing the 60-day allotment window. A round that closes in March and allots in July has a refund obligation and a 12% interest liability, regardless of the parties’ intentions.
4. Using Form SH-4 in a company that must be dematerialised. For non-small private companies, the physical route closed in 2025. A physical transfer in such a company is not a defective transfer; it is not a transfer.
5. Ignoring pre-emption rights in the Articles. A perfectly executed transfer that bypassed a right of first refusal is a breach actionable by the members who were bypassed.
6. Transferring at face value. Taxed twice — in the transferor’s hands under Section 50CA and in the transferee’s under Section 56(2)(x) — and, where a non-resident is involved, a FEMA contravention as well.
7. Under-stamping the instrument. ₹500 saved becomes an instrument that cannot be produced in evidence.
8. Treating a transmission as a transfer. A legal heir cannot execute an SH-4 on behalf of a deceased holder.
9. Filing PAS-3 and forgetting FC-GPR. Two regulators, two clocks, one allotment.
10. Never updating the register of members. Every filing above is derived from a register that, in a dispute, is the only evidence that matters.

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How Delhi Legal Company Supports Allotments and Transfers

We sequence the transaction before it starts. Authorised capital, Articles, pre-emption, valuation, entry route where a foreign investor is involved, and the tax position — checked before the term sheet hardens, because most defects in this area are created at the point the commercial terms are agreed.

We run the full private placement procedure. PAS-4 and PAS-5, the special resolution and explanatory statement, the separate bank account discipline, the allotment within sixty days, and PAS-3 filed before the funds are released — in the correct order, with the correct documents.

We manage the dematerialisation position. ISIN application, RTA appointment, reconciliation of existing holdings, and the transition from physical certificates for companies that have crossed the small-company threshold and are now within Rule 9B.

We handle transfers end to end. Pre-emption compliance, valuation, SH-4 or the depository route, stamp duty computed and paid correctly, board approval, register entry, and certificate issue — with the FEMA filing alongside where a non-resident is party.

We reconcile the cap table to the record. Every allotment tied to a PAS-3, every transfer to an instrument and a register entry, and the whole reconciled to MGT-7 and, where applicable, the FIRMS entity master. This is the exercise that makes a diligence request routine rather than fatal.

We remediate historic defects. Missing PAS-3 filings, unstamped instruments, allotments made beyond authorised capital, transfers made in breach of the Articles, and Section 42 defects — assessed honestly, with the adjudication or compounding route where regularisation alone will not do.

We prepare companies for diligence. For rounds, acquisitions, and exits, we assemble and reconcile the complete allotment and transfer history so that the cap table stands up to the buyer’s counsel.

Our office in Connaught Place, New Delhi gives us direct working proximity to the regulatory authorities, and our team handles allotments and transfers for startups raising their first round, established SMEs restructuring ownership, and India subsidiaries of foreign parents.

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Frequently Asked Questions on Share Allotment and Transfer

1. What is the difference between allotment and transfer of shares? 

A. Allotment is the creation and issue of new shares by the company, which increases its issued capital and requires Form PAS-3. Transfer is the movement of existing shares from one holder to another, which does not change the issued capital and is effected through Form SH-4 or, for dematerialised holdings, through the depository. They are governed by different provisions, different forms, and different deadlines.

2. Can a private company still issue physical share certificates? 

A. Only if it is a small company. Under Rule 9B, private companies that are not small companies must issue and hold securities only in dematerialised form, and the principal compliance deadline was 30 June 2025. A small company is a private company with paid-up capital not exceeding ₹4 crore and turnover not exceeding ₹40 crore.

3. Our company has just crossed the small-company threshold — when must we dematerialise? 

A. Within eighteen months of the close of the financial year in which the company ceased to be a small company. Rule 9B applies on a rolling basis rather than as a one-time test, so a company that becomes non-small as at 31 March 2026 has until 30 September 2027 to obtain an ISIN and complete dematerialisation.

4. What is the time limit for allotting shares after receiving money? 

A. Sixty days from receipt of the application money. If the shares are not allotted within that period, the money must be refunded within the following fifteen days, and if it is not, interest at 12% per annum runs from the expiry of the sixtieth day.

5. Can we use the money received before filing PAS-3? 

A. No. Money raised through a private placement must be kept in a separate bank account and cannot be utilised until the allotment has been made and Form PAS-3 has been filed with the Registrar. Using it earlier is an independent contravention of Section 42, exposing the company, promoters, and directors to a penalty measured against the amount raised.

6. What is the deadline for filing Form PAS-3? 

A. Fifteen days from allotment where the allotment is made under a private placement, and thirty days for other allotments. The entry in the register of members must be made within seven days of the Board or committee approving the allotment, regardless of when PAS-3 is filed.

7. How many people can we offer shares to in a private placement? 

A. A maximum of 200 persons in a financial year, per kind of security, excluding qualified institutional buyers and employees receiving securities under an ESOP. Exceeding the ceiling converts the private placement into a deemed public offer with substantially more serious consequences.

8. Is a registered valuer’s report mandatory? 

A. Yes, for a preferential allotment or private placement under Section 62(1)(c) read with Section 42. The report must come from a registered valuer under Section 247, be obtained before the offer, and form the basis of the pricing disclosure in the explanatory statement to the special resolution.

9. What is the stamp duty on issue and transfer of shares? 

A. 0.005% on the issue of securities and 0.015% on the transfer of securities, uniform across all Indian states since 1 July 2020 under the Indian Stamp Act as amended by the Finance Act, 2019. Documents still citing 0.25% for transfers are describing the pre-2020 position, which has not applied for six years.

10. Who pays the stamp duty on a share transfer? 

A. In practice the transferee, and on dematerialised transactions the duty is collected automatically by the depository from the transaction. For a physical transfer in a small company, it is paid by e-stamping at the place where the instrument is executed, and must be paid before the company registers the transfer.

11. What happens if Form SH-4 is not stamped? 

A. An unstamped or inadequately stamped instrument is inadmissible in evidence under the Indian Stamp Act. The transfer cannot be proved in a dispute, and the instrument may be impounded, with duty and penalty payable to make it admissible. The saving is trivial; the exposure is not.

12. Within how long must Form SH-4 be delivered to the company? A. Within sixty days of the date of execution of the instrument, together with the original share certificate or letter of allotment. Where the instrument is lost or is not delivered in time, the company may register the transfer on such indemnity as the Board thinks fit — a considered Board decision, not an administrative fix.

13. Can a private company refuse to register a transfer? 

A. Yes, on the grounds provided in its Articles, but it must send notice of refusal with reasons to both the transferor and the transferee within thirty days of receiving the instrument. The aggrieved party may appeal to the NCLT under Section 58 within thirty days of receiving the notice, or sixty days from lodgement where no notice was sent. Articles may restrict transfer but cannot absolutely prohibit it.

14. What if the Articles contain a right of first refusal and we ignore it? 

A. The transfer is a breach of the Articles, actionable by the members whose rights were bypassed, regardless of whether the SH-4 was correctly executed and stamped. Pre-emption compliance should be documented in writing — the offer, the response, and any waiver — before the transfer is executed.

15. Can shares be transferred at face value between family members? A. Legally the transfer can be executed, but the tax consequence is usually severe. Under Section 50CA the transferor is taxed on the deemed fair market value rather than the price received, and under Section 56(2)(x) the transferee is taxed on the difference between fair value and what was paid. The same shortfall is taxed twice. Where a non-resident is involved, it is also a FEMA pricing contravention.

16. What is the difference between transfer and transmission? 

A. Transfer is a voluntary act requiring an executed and stamped Form SH-4 from both parties. Transmission occurs by operation of law — on death, insolvency, or inheritance — and requires no SH-4 and no stamp duty, but does require supporting legal documents such as a death certificate and a succession certificate, probate, letters of administration, or legal heir certificate. A legal heir cannot sign an SH-4 on behalf of a deceased holder.

17. When must share certificates be issued? 

A. Within two months of allotment for a fresh issue, within two months of incorporation for subscribers to the Memorandum, and within one month of receipt of the instrument of transfer for a transfer. For companies within Rule 9B, the equivalent step is credit to the allottee’s or transferee’s demat account.

18. Do we need to file anything with the RBI when shares are issued to a foreign investor? 

A. Yes — Form FC-GPR within thirty days of allotment, in addition to Form PAS-3 with the ROC. For a transfer involving a non-resident, Form FC-TRS is due within sixty days of the transfer or the consideration, whichever is earlier. The MCA filing does not discharge the FEMA obligation, and the eligibility and pricing rules must be cleared before the money arrives.

19. We allotted shares two years ago and never filed PAS-3 — what now? 

A. File it, with the additional fees that have accrued, and correct the register of members and the share certificates at the same time. Where the allotment was a private placement and the money was used before filing, or where the allotment exceeded authorised capital, the defect is substantive rather than procedural and should be assessed for adjudication or compounding rather than simply filed late.

20. What documents will an investor ask for in diligence? 

A. The complete allotment and transfer history — every PAS-3 with its SRN, every SH-4 with evidence of stamping, board and shareholder resolutions, PAS-4 and PAS-5 records, valuation reports, the register of members, share certificates or demat statements, and the FC-GPR and FC-TRS record where foreign shareholding exists. The cap table spreadsheet is the summary; these documents are the evidence.