Secondaries: what actually has to happen when a shareholder sells

A secondary is one shareholder selling to another. It is easy to confuse with a funding round, and the difference matters: in a round the company issues new shares and receives the money; in a secondary no new shares exist and the money goes to the seller. The cap table changes shape without the company receiving a rupee.

The paperwork centres on Form SH-4, the share transfer deed, signed by transferor and transferee. Stamp duty on a delivery-basis transfer of securities is 0.015% of the consideration under the amended Indian Stamp Act, and it is the transferee who bears it. A genuine gift — a transfer with no consideration at all — attracts nil duty under the central regime, but “genuine” is doing real work in that sentence: keep the gift deed and the evidence, because a transfer priced at zero to avoid duty is a different thing entirely.

The company is not a bystander. The board approves the transfer, the register of members is updated, and a new share certificate is issued to the buyer. Articles of association frequently add conditions — rights of first refusal, tag-along and drag-along rights, promoter lock-ins — and a transfer that ignores them can be refused or unwound later.

The complication arrives when either side is not resident in India. A transfer between a resident and a non-resident is reportable to the RBI in Form FC-TRS through the FIRMS portal, and FEMA pricing guidelines set a floor when a non-resident buys and a ceiling when a non-resident sells. Getting the price wrong here is not a filing error; it is a contravention, with compounding to follow.

None of this is difficult. It goes wrong because a secondary feels informal — two people agreeing a price — and the register, the duty and the RBI filing get done weeks later, if at all.