There may be multiple reasons why people may wish to transfer their shares. They may wish to realise the value of their investment or raise funds for expansion. Nevertheless, it is important to ensure that proper procedures are adhered to so that the transfer will be upheld. In this guide, we will run you through a step-by-step guide of the procedures that will be required for the transferring of shares in a Singapore Private Company.
The requirements to transferring shares in a Singapore company is generally provided for in Division 7 of the Companies Act.[1] This guide deals with transferring legal ownership of shares, and does not deal with transferring equitable ownership. (E.g. where a private trust is created over the shares. In such cases, equitable ownership may be transferred, but legal ownership is not transferred.) Broadly, equitable ownership refers to a situation where a person has a right to ownership of the shares; legal ownership refers to a situation where a person has actual ownership of the shares by his/her registration on the company’s register of members.
The proper procedure for transferring shares in a Singapore private company involves a few broad steps:
- An Instrument of Transfer is executed by the transferor and the transferee.
In this article, the transferor refers to the shareholder who intends to sell his/her shares, and the transferee refers to the person who intends to buy the transferor’s shares.
An Instrument of Transfer is a document which indicates the transferor’s agreement in transferring his shares to the transferee, and the transferee’s agreement in accepting the shares from the transferor.
If either the transferee or the transferor is an incorporated company, further documentation should be produced before this step is executed. First, a board’s resolution in writing should be produced to authorise a representative to sign on the company’s behalf. Second, a certificate of appointment of corporate representative should be produced. Both are documents to show that the person who executed the Instrument of Transfer has the authority to do so on behalf of the company.
- Stamp duty is paid, and a written transfer request is made to the directors.
Stamp Duty should be paid by the transferee
After the Instrument of Transfer is executed, it is required to be stamped.
The Instrument of Transfer should be submitted to the Inland Revenue Authority of Singapore (IRAS) for payment of stamp duties. IRAS provides the various options to stamp these documents at IRAS Webpage, and the rates for the stamp duties are provided for at IRAS Stamp Duty Calculator.
The transferor and transferee can agree on which party should be liable to pay stamp duty in the Instrument of Transfer. However, if this is not stated in the instrument and not agreed upon, the party liable will be the transferee per the Third Schedule of the Stamp Duties Act.[2]
If the Instrument of Transfer was drawn or made within Singapore, stamp duties should be paid within 14 days after it has been first executed in Singapore or, if first executed outside Singapore, within 30 days after it has been first received in Singapore.[3]
Between transferor and the company
As provided in s 128(1) of the Companies’ Act, a transfer request to the board of directors must be made in writing. However, whether the transfer request is being accepted or not will be subject to the restrictions on transfer of shares, which will be further elaborated below.
- The company must lodge a notice of transfer with Accounting and Corporate Regulatory Authority (ACRA), subject to the restrictions on transfer of shares.
The share certificate of the transferor is a document which indicates that the transferor has an existing legal title to the share. Per s 126(1) of the Companies Act, if the Instrument of Transfer is in order, with the company possessing the old share certificate, the company must lodge a notice of transfer with ACRA. The notice of transfer should be lodged within 30 days. This process of lodging a notice of transfer can be done without any fees on Bizfile.
In the event that the company does not possess the Share Certificate, s 128(3) of the Companies’ Act provides that company shall, by notice in writing, require the person in possession, custody or control of the Share Certificate to produce it within 7 to 28 days.
Although shares are freely transferable, s 18(1) of the Companies’ Act expressly stipulates that the transfer of shares must be restricted in some way in the context of a private company. Two of the more common restrictions will be explored below – directors’ discreion, and pre-emption rights.
Directors’ discretion to decline to lodge a notice of transfer of shares
In many cases, there will be a stipulation in the company’s constitution similar to what is provided in the Model Constitution[4] at Article 26, which gives the directors discretion to decline to lodge a notice of transfer of shares. Even so, the directors are still required to act in the capacity of a fiduciary, in the best interests of the company.[5]
For a refusal to be effective, it must be exercised by a positive board resolution. It would also appear that the transfer must be registered if the directors are equally divided.[6]
If the company refuses to register the transferee, the company is required by s 129(1) of the Companies’ Act to send to the transferor and the transferee notice of the refusal within 30 days. This is unlike the position in common law, where directors do not need to give reasons for their refusal. A written notice must also be sent within 30 days stating the facts which are considered to justify refusal in the exercise of that discretion, per s 129(3) of the Companies’ Act.
Pre-emption Rights
In addition, there may be pre-emption rights in the company’s constitution that may stipulate to whom shares may be transferred, or may give the existing members a right to have any shares offered to them first before they can be transferred. Any transfer of shares which is in violation of the restriction on transfer of shares may be set aside, or declared void.[7] Hence, shareholders should sign a consent of waiver of pre-emption rights if they decide not to exercise them.
- ACRA updates the electronic register of the company’s members.
The transfer is effective only when the electronic register is updated, per s 126(3) of the Companies Act. This also applies where the transfer was made at the request of the transferor, per s 128(2) of the Companies Act.
- The new share certificate is issued.
s 130AE(2) of the Companies Act provides that the company is required to issue the new share certificate within 30 days of which the transfer is lodged. If the company does not do so, the transferee can serve a notice to the company to make good the default. If the company still does not issue the certificate within 10 days after service of the notice, the transferee can obtain a court order to compel the company to do so under s 130AE(4) of the Companies Act.
Summary
In summary, there are a few documents which are relevant for the transfer of shares. They are:
- Instrument of Transfer
- Notice of Transfer
- Share Certificate
- IRAS acknowledgement of stamp duty
These documents will be relevant depending on whether either the transferee or the transferor is a corporate shareholder:
- Certificate of Appointment of Corporate Representative
- Board Resolution in Writing authorising the transferor/transferee as the Company’s Corporate Representative
These documents will be relevant depending on the restrictions of the company:
- Board of Directors’ resolution
- Consent for Waiver of Pre-emption rights
[1] Companies Act (Cap 50, 2006 Rev Ed).
[2] Stamp Duties Act (Cap 312, 2006 Rev Ed).
[3] Stamp Duties Act (Cap 312, 2006 Rev Ed) s 46.
[4] Companies (Model Constitutions) Regulations 2015.
[5] Re Smith and Fawcett Ltd [1942] Ch 304, per Lord Greene MR; further affirmed in HSBC (Malaysia) Trustee Bhd. v Soon Cheong Pte Ltd [1993] 2 SLR(R) 176.
[6] Walter Woon on Company Law (Tan Cheng Han Gen Ed.) (Sweet & Maxwell, Rev. 3rd Ed, 2009) at para 11.149.
[7] Gan Sin Tuan v Chew Kian Kor [1958] 1 MLJ 62.
Need legal advice?
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This article is written by Parvathi Annanth from TJ Cheng Law Corporation and edited by Joel Fun of Asian Law Students Association.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.