How to Transfer Equity Shares of an Indian Company from Resident to Non-Resident?

Transfer of shares between two residents (of India) involves payment of consideration and execution of share transfer deed. Share transfer deed to be duly stamped @ 0.25% of the consideration amount. When the transaction is between a resident and a non-resident, there are many regulations. That is concerning inward and outward remittance of funds, valuation of shares, and submission of form FC-TRS on the e-biz portal. The Reserve Bank of India (RBI) through Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, made Foreign Exchange Management (Transfer Shares of Indian Company from Resident to Non Resident) Regulations, 2017 to regulate investment in India by a Person Resident outside India.

Introduction

Shares, as defined under the Companies Act, 2013 mean a share in the share capital and includes stock. As per the Companies Act, shares of a member of a company shall be movable property. Moreover, the article of association provides the manner for the transfer of shares. However, shares of a company are freely transferable. Transfer of shares between two residents (of India) involves payment of consideration and execution of share transfer deed. Share transfer deed to be duly stamped @ 0.25% of the consideration amount.

Provisions under the Companies Act, 2013

The legal provisions related to the transfer of shares are:

• Section 56 of Companies Act, 2013.
• Rule 11 of Companies (Share Capital & Debentures) Rules 2014.

Form Foreign Currency-Transfer of Shares (FC-TRS)

Form FC-TRS is required to be filed for the transfer of capital instruments (Equity Shares, Fully and Compulsory Convertible Securities) of an Indian Company in the following cases:

• When the transfer is made between a person resident outside India (repatriable basis) and a person resident outside India (non-repatriable basis)
• When the transfer is made between a person resident outside India (repatriable basis) and a person resident in India.

Registration on RBI-FIRMS Portal

The applicant reporting the transaction should get Entity user registration by visiting https://firms.rbi.org.in.  After getting the Entity user registration, the entity is required to get the business user registration as well.

Who is to file form FC-TRS?

Transfer of capital instruments prescribed above shall be reported on receipt of every tranche of payment. The most common question is between the public at large has to file this form with an Authorised Dealer Bank.

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be.

What is the Procedure for filing FC-TRS?

The following steps are included in the filing of the FC-TRS form:

Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:

• Share Transfer Deed as per SH-4
• Duly signed Consent letters from the buyers and seller.
• Transfer of Funds: The funds should be transferred through proper Banking channels. A copy of FIRC and copy of KYC of a person resident outside India should be obtained from Authorised Dealer Bank.
• Registration on E-Biz Portal: it is mandatory to register the details of the person filing the form along with his/her digital signatures (DSC) on the e-biz portal.
• Filing of form on E-Biz portal with the required Attachments: The form is filled online on the E-biz portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting the form.
• Scrutiny from AD Bank: Post submitting a form on the E-Biz portal, AD bank scrutinizes each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.
• Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is documentary evidence stating that FDI compliances are duly taken care of by the applicant.
• Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

What is the Time Limit for filing FC-TRS?

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of the transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

Steps that are to be followed for successful registration of transfer of securities from Resident to Non-Resident

• On receipt of consideration from a non-resident, obtain FIRC (Foreign Inward Remittance certificate) and KYC (Know your customer) of a person residing outside India from AD Category-I bank.
• Submit Security transfer deed/SH-4 and other documents required with the company.
• The company shall register the transfer in accordance with the Companies Act, 2013.
• File FC-TRS along with the attachments on the FIRMS RBI Portal by logging in with the Id password created for Business User Registration.
• RBI shall approve FC-TRS if it is filed without any discrepancies.

What are the Attachments to be filed with form FC-TRS on E-Biz Portal?

Form FC-TRS is an online form that is to be filled and filed through the E-biz portal along with the following important documents:

• Consent Letter from Buyer and Seller.
• Copy of FIRC in cases of foreign remittance is received by resident Indians.
• Copy of KYC of the buyer (NRI) on the letterhead of the Bank.
• Valuation Report from the Certified Valuer certifying the value of shares.

Valuation Aspects under Transfer of Securities

Various Aspects under Transfer of Securities:

• The transfer shall be made at or above fair value determined on an arm’s length basis.
• The minimum price shall be the fair value as determined by the Chartered Accountant.
• If the fair value, so determined, is lower than the face value of the securities of the Investee Company, then in that case the transfer shall be done at or above the face value per security.

Conclusion

The Reserve Bank of India (RBI) through Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, made Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 to regulate investment in India by a Person Resident outside India.