There may be times when you may want to sell your shares of your private company to someone. You may also want to purchase the shares of another private company. Here are some steps which should be followed.
- An Instrument of Transfer (An agreement between the transferor and transferee for the transfer or sale of shares. A Share Transfer Agreement.)
- Board Resolution (Depends on Constitution)
- Share Certificate
- Share Transfer Form
- Any other document based on the constitution of the company
The director of the company has a duty to ensure that the share transfers are done in the appropriate manner. This is so that there can be no dispute as to the ownership of the shares at a later date. He must also ensure that once the share transfer is completed, the appropriate stamp duties are paid to the Inland Revenue Authority of Singapore (IRAS). He may get the company secretary to assist you in the share transfer process. This is usually the case if there is an appointed filing agent to provide corporate secretarial work.
Before the transfer is made, the director should know the basis for the transfer or sale. In most cases, he may want to advise the transferor and transferee to engage a lawyer to draft a proper Share Purchase Agreement. This agreement will spell out the terms and conditions for the transfer as well as the purchase price.
If the company adopted the Model Constitution, there is a provision requiring the board approval for the transfer of shares. This is so that the board can decide whether the transfer or sale of the company’s shares are in the company’s best interest. The board may deny the transfer if they think that the proposed incoming shareholder will be a detriment to the company. There must be valid reasons for denying the transfer. There must be a meeting to discuss the matter and reasons must be documented and communicated to the transferor.
There may be a pre-emption rights clause in the constitution that states that the transferor must offer his or her shares to the existing shareholder proportionately before offering his or her shares to someone outside of the company. Any shareholder who wishes to exercise his or her pre-emption right must send the Notice of Transfer of Shares to the company to indicate their intention to exercise this right. If there are no existing shareholders who want to exercise this right then they should sign the Waiver of Pre-emption Rights document.
The Share Transfer Procedure
The transferor will execute the Instrument of Transfer with the transferee. The document will state that the transfer is agreed between both parties and state the number of shares to be transferred and the price of the shares.
The transferor will make a written request to the board of directors for approval for the transfer. The board has 30 days to approve or disapprove the transfer. They will convene a meeting and minutes will be taken and documented in a board resolution. If the board approves of the transfer, it will be stated on the board resolution. If the board disapproves of the transfer then they must send a written Notice of Refusal to both the transferor and transferee. The reasons for the disapproval must be related to the wellbeing of the company.
Once the approval is given, the Instrument of Transfer must be stamped with IRAS within 14 days and stamp duties paid. Usually, the transferee will pay for the stamp duty but this can be negotiated and stated in the Instrument of Transfer. The stamp duty is 0.2% of the sale price. In the case of late stamping, IRAS may levy a penalty of $25 or 4 times the stamp duty payable, whichever is higher.
Next, the transferor will have to surrender the original share certificate to the company for the share certificate to be cancelled or rectified. This should be done immediately but the board can set a deadline. The usual deadline is 7 days although there are cases where the deadline to surrender the share certificate is extended to 4 weeks.
Once the document is received, the board, usually the company secretary, will update ACRA of the transfer of shares and update the list of members. Next, he will update the electronic register of company members. Only then will the transfer be effective.
Finally, the new shareholder will be issued with a new share certificate within 30 days of registering the transfer with ACRA.
The process of transferring shares in a private company is rather tedious and complicated. However, it must be executed with a high degree of care by all parties.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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This article first appeared on Singapore Secretary Services’ website.