Legal Issues Involved in Share Transfer Restrictions in Case of Private Company

Abstract

A Shareholders’ agreement (SHA) in a company is a private document unlike the Articles of
Association (AOA). For the maintenance of confidentiality of terms, the parties are motivated to enter
into an SHA. The main advantage of entering into a separate SHA instead of incorporating the terms
of agreement in the AOA is maintenance of confidentiality. Shares of a company are considered to be
movable property. Shares of the company are also personal property. One of the rights attached to
property is the right to transfer the property. Transfer of property Act, 1882 states that if you have
a title to the property, you have the right to transfer it or restrict the transfer. The law involved in the
landmark judgement of the case of V B Rangraj v Rang raj B Gopalakrishnan is perplexing. Here the
court has not allowed the formation of private contracts between the shareholders in private
company. Transferability of shares changes the corporate structuring according to the nature and
proportion of shares involved in such transfer.