Yes, SONY Media Software does allow this, which is very unusually generous of them. The proper procedure is to inform SONY Media Software of the transfer and who you are transferring it to. You then remove the software from your computer and give all original discs, copies, downloads, etc. to the new owner. The new owner then contacts SONY Media Software and is issued a new license key. Your license key will then be deactivated.
You can give it to you buddy, but he's not allowed to get the upgrade price. Only you are allowed to get the upgrade price. If your buddy wants to upgrade, they will need to pay the full price for the newer version.