The Ministry of Corporate Affairs (MCA), vide clarification dated 11 May 2026, has clarified the procedure to be followed for transfer of interest of a member in a company not having share capital. The clarification is significant for companies limited by guarantee, including Section 8 companies, trade associations, clubs and other non-profit entities operating through membership structures instead of shareholding.

The MCA clarified that Section 56 of the Companies Act, 2013 governs such transfers and requires execution of a proper instrument of transfer even where the company does not have share capital.

The clarification issued by MCA states:

“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.”

The Ministry further referred to Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014, which prescribes Form SH-4 as the format for transfer of securities held in physical form.

Importantly, Rule 11(2) extends the applicability of Form SH-4 to transfer of interest of members in companies not having share capital. In this regard, the MCA clarified:

“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.”

Based on the above provisions, the MCA advised stakeholders as follows:

“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).”

The clarification removes the ambiguity that existed in practice regarding the documentation required for transfer of membership interest in guarantee companies. Many stakeholders were of the view that Form SH-4 applied only to transfer of shares or securities in companies having share capital. The MCA has now expressly reaffirmed that Rule 11(2) makes the form equally applicable to companies without share capital.

The clarification also emphasizes that transfer of membership interest cannot be carried out through informal letters or declarations alone. A proper statutory instrument executed by or on behalf of both transferor and transferee is necessary under Section 56 of the Companies Act, 2013.

The clarification dated 11 May 2026 is therefore an important compliance development for companies limited by guarantee and other entities without share capital, as it establishes a uniform and legally recognized mechanism for transfer of membership interest through Form SH-4.