Shares of Private Limited company are not freely transferable. (2024)

FAQs

Shares of Private Limited company are not freely transferable.? ›

The answer: Explanation: While the Companies Act necessitates a restriction on the transfer of the shares in a private company, the Act is silent of the nature of such a restriction. There is no specific restriction provided and the severity of the restriction could greatly differ from company to company.

In the case of a private company, every member owing fully paid-up shares can freely transfer shares held by him.

Transferability of shares- the transferability of shares in a private company is limited. Any private agreement between the shareholders are not binding either on the company or on the shareholders. Share transfer can only be restricted by the Articles of Association.

The provision contained in the law for the free transferability of shares in a public Company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder, the freedom to transfer.

Shares in the publicly held corporation must be freely transferable because they are sold to the investing public.

You are required to complete and file a share transfer form whenever you add shares to the holding of an existing shareholder or remove them.

In accordance with the Companies Act, Act 71 of 2008 (hereinafter the “Act”), the transferability of the shares in a private company must be restricted in its Memorandum of Incorporation.

The Bottom Line. While individuals can't buy stock in a private company, they can own and sell those shares. If you want to sell, you will usually have to sell back to the company that issued those shares. Otherwise, seek out a broker experienced in dealing with sophisticated transactions.

Transferability is an important feature of a share in a company imposed by the articles, a shareholder is free to transfer shares to a person of his own .

Transferable Shares means (i) Shares and (ii) Shares issuable upon exercise, conversion or exchange of any convertible debt security or preferred security that is currently exercisable for, convertible into or exchangeable for, as of the relevant date of determination, Shares.

How to transfer shares in a private limited company? ›

To transfer company shares, you must first complete and submit a stock transfer form. You will be required to submit the following information when completing the stock transfer form: Consideration money (How much is paid for the shares) Name of Security (e.g. 100 Ordinary Shares for YOUR COMPANY LIMITED)

In principle, shares are freely transferable. In practice, however, it often happens that the transfer of registered shares is restricted.

For being about to transfer shares, the shareholder would require the board members' approval and the approval of all the other shareholders in the company. Once this is done, the share transfer form is filled in, and the new share certificate is issued accordingly to the person getting the shares.

To sell private company stock—because it represents a stake in a company that is not listed on any exchange—the shareholder must find a willing buyer. In addition, a sale of private stock must be approved by the company that issued the shares.

Private limited company means a company which is privately held by closed group of persons. Hence its shares cannot be publicly traded on the stock exchange. Only public companies which are listed on stock exchange can trade its shares on stock exchange.

Private companies may issue stock and have shareholders, but their shares are not issued through an initial public offering (IPO) and do not trade on public exchanges. Private firms are not subject to the Securities and Exchange Commission's (SEC) filing requirements.

Employees can sell their shares in a private company, but they need approval from their company first (the issuing firm).