Company law and LLP · Directors, meetings and changes
How does a private company transfer shares, increase its authorised capital and raise money by private placement?
Short answer
Shares are transferred under an instrument in SH-4, stamped and lodged with the company, subject to the restrictions in the articles. Private companies other than small companies must now hold shares in demat. Authorised capital is increased by an ordinary resolution and SH-7 within 30 days. A private placement needs a special resolution, an offer letter in PAS-4 to no more than 200 people a year, money through a separate bank account, and PAS-3 within 15 days.
Transfer of shares
- Check the articles: private companies usually restrict transfers (for example, a right of first refusal for existing shareholders).
- Execute the instrument of transfer (SH-4), signed by the transferor and transferee, and pay stamp duty of 0.015% of the consideration.
- Lodge it with the company, with the share certificate, within 60 days of execution.
- The board approves the transfer, and the register of members is updated.
Demat: private companies other than small companies had to dematerialise their securities by 30 June 2025. Their shares can now be issued, transferred or bought back only in demat form, through a depository participant.
Valuation: transfers to or from non-residents follow FEMA pricing rules and are reported in FC-TRS within 60 days. Income-tax fair market value rules also apply to the buyer.
Increasing authorised capital (section 61)
- Check that the articles allow it; otherwise amend them first.
- Pass an ordinary resolution at a general meeting (the articles may require a special resolution).
- Amend the capital clause of the MoA.
- File SH-7 within 30 days, with the fee and stamp duty on the increase.
Raising money by private placement (section 42)
| Step | Requirement |
|---|---|
| Approval | Special resolution for each offer |
| Valuation | Registered valuer's report for a preferential allotment |
| Offer | Private placement offer letter in PAS-4, to identified persons; no more than 200 in a financial year (excluding qualified institutional buyers and ESOPs) |
| Money | Only by banking channels from the subscriber's own account, into a separate bank account |
| Allotment | Within 60 days of receiving money, or refund within 15 days after that |
| Filing | PAS-3 within 15 days of allotment |
| Use of money | Only after PAS-3 is filed |
A breach can attract a penalty up to the amount raised or ₹2 crore, whichever is lower, and a refund to subscribers.
A rights issue (section 62) to existing shareholders is simpler and needs only a board resolution, if the articles allow it.
Legal basis
- Sections 42, 56, 61, 62 and 64, Companies Act, 2013
- Rule 9B, Companies (Prospectus and Allotment of Securities) Rules, 2014 (demat for private companies)
- Rules 13 and 14, Companies (Share Capital and Debentures) Rules and (Prospectus and Allotment of Securities) Rules, 2014
Official sources
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