Transfer of interests of Members in Companies not having Share Capital

Recently, on 8th May, 2026, MCA has issued an advisory touching upon the Procedure to be followed in case of transfer of interest of a member in a company not having Share Capital. 

Following is the text of the advisory. 

Section 56 of the Companies Act, 2013 provides that a proper instrument of transfer is required to be executed in case of transfer of the interest of a member in case of a company having no share capital. Such instrument is required to be executed by or on behalf of the transferor and the transferee and must be delivered to the company in terms of the said provision. 

Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 provides that form SH-4 shall be the format for transfer of securities held in the physical form. Rule 11(2) of the said rules clarifies that the same form is also required to be used in case of transfer of interest of a member in a company not having Share capital. The said provision clarifies that the reference to securities shall be read as reference to “interest of the member of the company”. 

Accordingly, stakeholders are advised to use form SH-4 for transfer of interest of member in case of a company limited with guarantee in terms of rule 11(2).

Based on the provisions of Section 56 of the Companies Act, 2013, and Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014, here is a FAQ addressing the key aspects of transferring interest in a company without share capital (such as a Company Limited by Guarantee).

FAQs on Transfer of Interest in Companies Without Share Capital

Q1: Is a formal document required to transfer a member's interest in a company that does not have share capital?

A: Yes. Under Section 56 of the Companies Act, 2013, a "proper instrument of transfer" must be executed to validly transfer a member's interest. This applies even if the company does not issue shares.

Q2: Who are the necessary parties to the execution of the transfer instrument?

A: The instrument of transfer must be executed by, or on behalf of, both the transferor (the person giving up the interest) and the transferee (the person acquiring the interest).

Q3: Which specific form should be used for this transfer?

A: According to Rule 11(2) of the Companies (Share Capital and Debentures) Rules, 2014, Form SH-4 (Securities Transfer Form) must be used. Although typically used for physical shares, the law specifically mandates its use for transferring the "interest of a member" in companies without share capital.

Q4: How should the term "securities" mentioned in Form SH-4 be interpreted in this context?

A: Rule 11(2) clarifies that when using Form SH-4 for a company without share capital, any reference to "securities" within the form should be read and understood as a reference to the "interest of the member of the company."

Q5: What is the final step to complete the transfer process after the form is signed?

A: Once the instrument (Form SH-4) is duly executed by both parties, it must be delivered to the company in accordance with the provisions of Section 56 to enable the company to update its Register of Members.

Q6: Does this procedure apply to Companies Limited by Guarantee?

A: Yes. The Ministry of Corporate Affairs (MCA) has specifically advised stakeholders that companies limited by guarantee should follow this procedure and use Form SH-4 for the transfer of member interests.

Q7: Do we need to amend the form SH-4 as per this procedure for making transfer of interest in Companies Limited by Guarantee?

A: No, you do not need to physically amend or redesign the statutory layout of Form SH-4. Instead, you should follow a "Substitution Approach" where you use the standard form but fill in the details according to the specific nature of a membership interest.

The legal basis for this is Rule 11(2) of the Companies (Share Capital and Debentures) Rules, 2014, which acts as a "bridge" between the share-centric form and your guarantee company.

How to fill SH-4 for a Transfer of Interest

To remain compliant while using a form designed for shares, apply these specific formatting rules:

Field on Form SH-4                           What to Enter for a Guarantee Company

Description of Securities                  Write: "Interest of the Member"

Nominal Value of each unit               Write: "N.A." (or the Guarantee amount if fixed)

Amount called up/paid up                 Write: "N.A."

Distinctive Numbers                          Write: "N.A."

Certificate Numbers                          Write: "N.A." or the Membership Certificate No.


Why you shouldn't "Alter" the Form

  • Regulatory Rigidity: The Ministry of Corporate Affairs (MCA) expects Form SH-4 to look like the one prescribed in the Act. Deviating from the visual structure might lead to queries from auditors or authorities.

  • Legal Deeming: Rule 11(2) specifically states that the reference to "securities" in the form shall be read as a reference to the "interest of the member." This means the law already "translates" the form for you—no manual amendment of the headers is necessary.

Important Procedural Note

Even though you aren't transferring shares, this instrument is still a transfer of property. Therefore:

  1. Stamp Duty: You must ensure the instrument is duly stamped. Since there is no "market value" of shares, stamp duty is usually paid as a fixed rate based on your state's Stamp Act (typically under the category of "Transfer" or "Agreement").

  2. Board Approval: Just like a share transfer, the Board of Directors must pass a resolution to take note of this transfer and authorize the update to the Register of Members (MGT-1).

The "Best Practice" for Compliance and our Records

To ensure compliance and be on a safer side, we can add a footnoted clarification at the bottom of the form:

"Note: This form is executed in accordance with Rule 11(2) of the Companies (Share Capital and Debentures) Rules, 2014, for the transfer of membership interest in a company not having share capital."


This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

Comments

Post a Comment

Popular posts from this blog

Valuation of Shares and other Securities under Companies Act, 2013

As per Companies Act, valuation may be required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or their liabilities.  Under this article, we will consider valuation aspects of shares and other securities under companies act 2013. Who can conduct valuation of shares? after 31st January, 2019 only a person registered as Registered Valuer as per Section 247 are eligible to do valuation of Securities. Except Registered valuer no other persons like (Merchant Banker or Chartered Accountant) can do the valuation of Securities.  What is the validity of a valuation report given under Sec 247 of the Companies Act? It is valid upto 6 months usually. However, it depends upon events for which you are considering the Valuation report. Is valuation report required for rights issue? Not mandatory in case of rights issue. If rights issue is at the premium, then? Still not...
Read more

Process for Redemption of Non-Convertible Debentures (NCDs)

Non-Convertible Debentures (NCDs)  Non-Convertible Debentures (NCDs) are debt instruments issued by a company that cannot be converted into equity shares. These debentures are redeemed at the end of a specified period. An NCD represents an obligation by the company to repay the principal amount along with a specified rate of interest. After the specified period, the said debentures can be redeemed. Redemption of debentures is the process of a company repaying the principal amount of its debentures to the debenture holders. It's a planned financial move to ensure that the company can meet its debt obligations. The Issuer Companies can adhere to the following process for the redemption of Non-Convertible Debentures (NCDs).    1. Verify Terms of Issue ·   Review the Debenture Trust Deed and the Offer Document/Prospectus for redemption terms, including: o     Redemption date. o     Mode of redemption (lump sum or in...
Read more

Security Clearance from MHA for foreign national of a country sharing land border with India

Overview  Latest regulations mandates security clearance from the Ministry of Home Affairs (MHA) for individuals from land-bordering countries, such as China, seeking directorships in Indian companies. This article unpacks the essential requirements, implications, and step-by-step application process at E-SAHAJ SEWA for this mandatory clearance, empowering businesses and aspiring directors to ensure smooth compliance and national security. Stay ahead of the curve and ensure success in India's dynamic business environment with this comprehensive guide. India’s corporate landscape is evolving, and so are its regulations. In June 2022, a significant amendment to the Companies (Appointment and Qualification of Directors) Rules [Notification] made security clearance from the Ministry of Home Affairs (MHA) mandatory for individuals from countries sharing land borders with India seeking directorships in Indian companies. While aiming to safeguard national security interests, this new req...
Read more