Procedure for the transfer of shares in a company
A comprehensive note on the law and procedure for the transfer of shares in a company registered under the companies ordinance
1. Introduction:
The authorized capital of a company is divided into small parts. every part is called share. the shares of a public company are moveable property. public limited company offers the shares to the public through the prospectus. the person who purchases shares is called a shareholder. Under Companies Ordinance 1984, a shareholder can transfer his shares by following the company shall have a distinctive number.
2. Definition of share:
(i) Under companies ordinance:
A share means a share in the share capital of a company.
(ii) According to Justice Farewell:
A share is the interest of the shareholders in the company. it is measured by the sum of money for the purpose of liability in the first place and of interest in the second place.
3. Nature of share:
(a) Transferable:
Share of a company can be transferred.
(b) Moveable property:
Share is the moveable property of a company.
(c) Not refundable:
Share is not refundable.
(i) Exception:
In case of
(a) Winding up of a company or
(b) Reduction of share capital is refundable.
4. Kinds of share:
The following are the main kinds of shares.
- (i) Ordinary shares.
- (ii) Preferred share.
- (iii) Deferred share.
5. Transfer of share:
Share is a moveable property of a company. it can be transferred in the manner provided by the articles of association of the company.
6. Who can transfer the share:
A shareholder has the power to transfer his shares.
7. Determination of value of shares:
The value is measured by the nominal amount of the share and by the rights and obligations relating to it as defined by the company's ordinance.
8. Allotment of shares:
Allotment is the appropriation of a person of a certain number of shares. An application for a share is an offer to take the share where as the allotment is acceptance of that offer by the company. The application can be withdrawn at any time before acceptance is communicated.
9. Restrictions on transfer of shares:
Shares are freely transferable unless the company's articles of association impose restrictions on such transfer from one person to another.
10. Procedure of transfer of share:
I. Application:
An application for the transfer of shares is made. transferor or transferee can make an application for the transfer of shares.
(a) In case an application is made by the transferor:
Where the application is made by the transferor and the shares transferred are partly paid, the company should give notice thereof to the transferee. If no objection is raised to the proposed transfer by the transferee within thirty days from the date of receipt of the notice, the company may register the transfer.
(b) In case an application is made by the transferee:
If the application is made by the transferee or Shares are fully paid, no notice is necessary.
II. Execution of instrument of transfer:
The instrument of transfer must be executed both by the transferor and the transferee.
Particulars of instrument:
Name of the transferee.
Address of the transferee.
Occupation of the transferee.
III. Stamps on an instrument:
The instrument of transfer should be duly stamped.
IV. Delivery to company:
The instrument should be delivered to the company along with the certificate relating to the shares transferred.
V. Prescribed form:
The instrument of transfer should be in the prescribed form.
VI. Examination of the instrument of transfer:
The instrument of transfer will be examined by the authority.
VII. Approval of transfer:
The transfer is presented to the board of directors, where the transfer is approved.
VIII. Issuance of new certificate:
A new certificate is signed and sealed according to the regulations of the company and handed over to the new shareholder.
11. Circumstances when the transfer is refused by the director of the company:
The director of the company can refuse to register the share in the following circumstances:
If the transfer instrument is defective.
If the transfer instrument is invalid.
The company has a line on the shares.
The calls on the shares are up-paid.
If the transferee is not approved by the company.
12. Conclusion:
To conclude I can say that shares of a public company are moverable property. they are transferable in the manner provided by the articles of association of the company. an application for the transfer of shares has to be made either by the transferor or by the transferee. the directors cannot refuse the registration of the transfer of full paid-up shares unless the transfer instrument is defective or invalid. the court will not interfere with their discretion of refusal unless it can be shown that they did not bona-fide.