1) Meaning of transfer of share

The word 'transfer of share' is an act of the parties (transferor and transferee) by which title to share is transferred from one person to another. Transfer of share may also take place succession.

 

Transfer Deed is compulsory for share transfer

In Companies Act, 1956 transfer of share is governed by Section 108. As per section 108 registration of transfer of shares is possible only if a proper transfer deed in Form 7B duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, along with the share certificate.

Kindly note where share certificate is not in existence, attach letter of allotment with of the share transfer deed.

 

Rate of Stamp duty

Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.

 

Transfer procedure not applicable under the depositories system

Section 108(3) provides that the provisions of section 108 shall not apply to transfer of securities under the depositories system.

 

Validity of transfer deed

In the case of listed company, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) of section 108(1A) or within twelve months from the date of such presentation, whichever is later.  In any other case, within two months from the date of such presentation.

 

SHARES TRANSFER IN A PRIVATE COMPANY

 

Restriction in Private company on the right to transfer its shares [Section 3(1)(iii)]

Section 3(1)(iii)(a) of the Companies Act, 1956 provides that the Articles of a private company shall restrict the right to transfer the company's shares. Normally 100% shareholding of a private company may be owned by a family or other private group.

 

Cases where Restriction on transfer not applicable

Restriction upon transfer of shares in private company not applicable in the following cases:— (i) on the right of a member to transfer his/her shares to his/her representative(s).

(ii) in the event of death of a shareholder, legal representatives may require the registration of share in his/her name.

 

Procedure for transfer of shares of private company

Transfer of shares in a private company is governed by AOA. Some steps followed by a private company to give effect to the transfer of shares are as follows:—

 

(i) Transferor should give a notice in writing to the company for his intention to transfer his share.

(ii) The company in turn notify to other members as regards the availability of shares and the price at which such share would be available to them along with the time limit within which they should communicate their option to purchase shares on transfer.

(iii) Such price is generally determined by the directors or the auditors of the company.

 

If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.

 

Valuation of share for the purpose of transfer of shares of a private company

Normally Articles of a private company contain provisions in this regard and provides that the shares are to be sold at a fair price determined by directors or the company's auditors.

 

Transfer of shares in a public company

Section 111A(2) provides that the shares or debentures of a public company shall be freely transferable. Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board/ Tribunal and it shall direct such company to register the transfer of shares.

 

Checklist to be followed for transfer of shares

(i) Arrange share transfer deed (Form 7B). It should be endorsed by the prescribed authority. This deed can also be used for the transfer of debenture.

(ii) Get the transfer deed duly executed both by the transferor and the transferee as desired by sections 108 and 109 of the Act and the Articles of Association.

(iii) The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise for every one hundred rupees of the value of shares or part thereof.

(iv) Do not forget to cancel the stamps affixed on the transfer deed at the time or before signing of the transfer deed. (v) The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person

giving his signature, name and address. (vi) Attach the relevant share or debenture certificate or allotment letter with the transfer deed and deliver the same

to the company within the time limits. (vii) Where the application is made by the transferor and relates to partly paid-up shares, the company has to give

due notice of the amount due on shares/debentures to the transferee and the transferee shall raise objection, if any within two weeks from the date of receipt of the said notice.

(viii) If signed transfer deed has been lost, affix the same stamp on a written application. In such case, the Board may, if it thinks fit to do so, register the transfer on such terms of indemnity as it thinks fit.

 

EXTENSION OF VALIDITY OF TRANSFER DEED_PROCEDURE

In case the validity period of a share transfer deed has expired, the same can be extended by making an application in Form 7C to the ROC. The fee for such application is Rs. 50 where the nominal value of the shares is upto Rs. 5,000 and the fee is Rs. 100 where the value exceeds Rs. 5000.

 

The application shall be made to the Registrar of Companies, where the registered office of the Company is situated or under whose jurisdiction the transferor or transferee resides. The Registrar on satisfaction of the cause shown in the application shall extend the validity for a period of 30 days from the date of approval by the Registrar. It should be noted that further extension will not be provided by the Registrar. Therefore, the transfer deed should be lodged with the company within the extended period only.

 

Difference in the signature of transferor

One of the reason for refusal of transfer of shares is the difference in the signature(s) of the transferor in the share transfer deeds with the specimen signatures available in the records of the company. To avoid this situation, it is advisable to provide an option to the members for furnishing fresh specimen signatures for the records of the company.

 

Remedy for refusal of transfer of Shares

Appeal against refusal to register transfer of shares

In the case of refusal, the transferee may appeal to the CLB/Tribunal against any refusal by the company to register the transfer or transmission. This appeal can also be preferred where there is delay on the part of the company to send notice of its refusal to register the transfer within the period of two months. [Section 111(2)].

Such appeal to the Company Law Board/Tribunal under section 111(2) of the Act shall be made within two months of the receipt of the notice of such refusal or, where no such notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. [Section 111(3)].

 

PROCEDURE FOR TRANSFER OF PARTLY PAID UP SHARES

Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be registered, unless the company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice. The notice to the transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer, and shall be deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.

3) What Does Share Certificate Mean?A share certificate is a written document signed on behalf of a corporation, and serves as legal proof of ownership of the number of shares indicated.

Also referred to as a "stock certificate".

Investopedia explains Share CertificateIn modern financial markets, individual investors rarely take physical possession of their share certificates. "Scripophily" is a term that signifies the collecting of share certificates and other forms of paper based financial securities. Similar to stamp collecting or bank note collecting, a share certificate's value is dependent on its condition and age.

Read more: http://www.investopedia.com/terms/s/share-certificate.asp#ixzz1Xjt4IYYf

4) A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. It is unlike an option in that a warrant is issued by a company, whereas an option is an instrument of the stock exchange. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of by an investor holding the shares.

Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can also increase a shareholder's confidence in a

stock, provided the underlying value of the security actually does increase over time. (Warrants are just one type of equity derivative. Find out about the others in 5 Equity Derivatives And How They Work.)

Types of WarrantsThere are two different types of warrants: a call warrant and a put warrant. A call warrant represents a specific number of shares that can be purchased from the issuer at a specific price, on or before a certain date. A put warrant represents a certain amount of equity that can be sold back to the issuer at a specified price, on or before a stated date.

Characteristics of a Warrant Warrant certificates have stated particulars regarding the investment tool they represent. All warrants have a specified expiry date, the last day the rights of a warrant can be executed. Warrants are classified by their exercise style: an American warrant, for instance, can be exercised anytime before or on the stated expiry date, and a European warrant, on the other hand, can be carried out only on the day of expiration.

The underlying instrument the warrant represents is also stated on warrant certificates. A warrant typically corresponds to a specific number of shares, but it can also represent a commodity, index or a currency.

The exercise or strike price is the amount that must be paid in order to either buy the call warrant or sell the put warrant. The payment of the strike price results in a transfer of the specified amount of the underlying instrument.

The conversion ratio is the number of warrants needed in order to buy (or sell) one investment unit. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa.

In the case of an index warrant, an index multiplier would be stated instead. This figure would be used to determine the amount payable to the holder upon the exercise date.

Investing in Warrants Warrants are transferable, quoted certificates, and they tend to be more attractive for medium-term to long-term investment schemes. Tending to be high-risk, high-return investment tools that remain largely unexploited in investment strategies, warrants are also an attractive option for speculators and hedgers. Transparency is high and warrants offer a viable option for private investors as well. This is because the cost of a warrant is commonly low, and the initial investment needed to command a large amount of equity is actually quite small.

Advantages Let us look at an example that illustrates one of the potential benefits of warrants. Say that XYZ shares are currently priced on the market for $1.50 per share. In order to purchase 1,000 shares, an investor would need $1,500. However, if the investor opted to buy a warrant (representing one share) that was going for $0.50 per warrant, he or she would be in possession of 3,000 shares using the same $1,500.

Because the prices of warrants are low, the leverage and gearing they offer is high. This means that there is a potential for larger capital gains and losses. While it is common for both a share price and a warrant price to move in parallel (in absolute terms) the percentage gain (or loss), will be significantly varied because of the initial difference in price. Warrants generally exaggerate share price movements in terms of percentage change.

Let us look at another example to illustrate these points. Say that share XYZ gains $0.30 per share from $1.50, to close at $1.80. The percentage gain would be 20%. However, with a $0.30 gain in the warrant, from $0.50 to $0.80, the percentage gain would be 60%.

In this example, the gearing factor is calculated by dividing the original share price by the original warrant price: $1.50 / $0.50 = 3. The "3" is the gearing factor - essentially the amount of financial leverage the warrant offers. The higher the number, the larger the potential for capital gains (or losses).

Warrants can offer significant gains to an investor during a bull market. They can also offer some protection to an investor during a bear market. This is because as the price of an underlying share begins to drop, the warrant may not realize as much loss because the price, in relation to the actual share, is already low. (Leverage can be a good thing, up to a point. Learn more in The Leverage Cliff: Watch Your Step.)

Disadvantages Like any other type of investment, warrants also have their drawbacks and risks. As mentioned above, the leverage and gearing warrants offer can be high. But these can also work to the disadvantage of the investor. If we reverse the outcome of the example from above and realize a drop in absolute price by $0.30, the percentage loss for the share price would be 20%, while the loss on the warrant would be 60% - obvious when you consider the factor of three used to leverage, but a different matter when it bites a hole in your portfolio.  

Another disadvantage and risk to the warrant investor is that the value of the certificate can drop to zero. If that were to happen before it is exercised, the warrant would lose any redemption value.

Finally, a holder of a warrant does not have any voting, shareholding or dividend rights. The

investor can therefore have no say in the functioning of the company, even though he or she is affected by any decisions made.

Read more: http://www.investopedia.com/articles/04/021704.asp#ixzz1XjufNHXR

The procedures regarding issue of a share warrant are as follows:-

(1) Written application: TO convert a share certificate into share warrant, a share holder has to submit a written application. Along with the application, he has to send the original share certificate. He has also to pay the necessary stamp duty and fees for conversion.

(2) Issue of Lodgement ticket: After receiving the application and the share certificate, the secretary issues a lodgement ticket. It is an official acknowledgment for the deposit of share certificate for conversion into share warrant.

(3) Scrutiny documents: The secretary will then check the documents submitted by the share holder to convert a share certificate into a share warrant. To do such checking, he has to refer the register of members.

(4) Board sanction: A meeting of the Board of Directors will be called. In this meeting, the secretary will place the application of conversion of share certificate into a share warrant for approval and consideration by the Board of Directors. The Board of Directors will pass a necessary resolution to issue a share warrant, where in the secretary will be authorized to take necessary steps to issue a share warrant.

(5) Preparation of share warrant and making entries in the Register of members: After the Board of Directors have passed a resolution to issue a share warrant, the secretary will cancel the share certificate and prepares a share warrant which is duly stamped, sealed and signed. Necessary details like the distinctive number of shares entered in the share warrant, the date of issue of the share warrant are entered in the Register of members.

(6) Intimation about the share warrant: Once the share warrant is ready, the secretary informs the concerned members to come and collect the share warrant against the lodgement ticket issued to him.

7) What Does Commission Mean?A service charge assessed by a broker or investment advisor in return for providing investment

advice and/or handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions. Commissions vary widely from brokerage to brokerage.

Investopedia explains CommissionThe brokerage with the lowest commissions is not necessarily the best one. Discount brokerages offer no advice, which can prove to be troublesome for many rookie investors. On the other hand, full-service brokerages offer a more personalized service, but commissions are much higher. However, when commission is charged there is the potential for a conflict of interest to develop between brokerages and their clients. Because commission compensated brokers will not get paid very much if their clients do not conduct many transactions, unethical brokers may encourage clients to conduct more trades than necessary.

Read more: http://www.investopedia.com/terms/c/commission.asp#ixzz1XjvQ9gTg

A brokerage firm, or simply brokerage or broker in context, is a financial institution that facilitates the buying and selling of financial derivatives between a buyer and a seller. Brokerage firms serve a clientele of investors who trade public stocks and other securities.

8) What Does Dividend Mean?

1. A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Also referred to as "Dividend Per Share (DPS)."

2. Mandatory distributions of income and realized capital gains made to mutual fund investors. 

  

Watch: Dividend

Investopedia explains Dividend1. Dividends may be in the form of cash, stock or property. Most secure and stable companies

offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

2. Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders. In addition, realized capital gains from the portfolio's trading activities are generally paid out (capital gains distribution) as a year-end dividend.

Read more: http://www.investopedia.com/terms/d/dividend.asp#ixzz1XjwJbERX