MCA Portal Update: Procedure for Transfer of Membership Interest in a Company Without Share Capital

For companies that do not possess share capital, the transfer of a member’s interest is governed under the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014. Despite such companies not issuing shares, members still possess an “interest” in the company, which can be transferred by following a prescribed procedure.

According to the provisions of Section 56 of the Companies Act, 2013, this transfer of a member’s interest requires the execution of a proper instrument of transfer in case a company has no share capital. Meaning, a written document must be prepared, which should be signed by both the person transferring the interest and the person receiving it. Thereafter, this document should be sent to the concerned company for the purpose of registration. The person who transfers the interest is called the transferor, and the person who receives it is called the transferee.

According to the provisions of Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014, Form SH-4 should be used as the standard form for transferring securities held in physical form. This form should also be used to transfer the interest of a member in a company that does not possess share capital, as per Rule 11(2). The said provision clarifies that the reference to securities shall be read as a reference to “interest of the member of the company”.

Therefore, in the case of companies limited by guarantee or any other company without share capital, the transfer process remains structured and formal. The parties must make sure that Form SH-4 is accurately filed and signed by both transferor and transferee and delivered to the company. The company will then record the transfer after verifying compliance with legal requirements.