Unlike an allotment of shares, which is governed purely by the Accounting and Corporate Regulatory Authority (“ACRA”), stamp duties are required to be paid to the Inland Revenue Authority of Singapore (“IRAS”) when shareholders wish to transfer shares. We provide you with a comprehensive guide to the procedures and process for a transfer of shares.
What documents will need to be prepared to effect a transfer of shares?
In any transaction that has a transfer of shares, there will be a “transferor” and a “transferee”. For the avoidance of doubt, a transferor refers to the existing shareholder who is giving up the share, while the transferee is the new shareholder who will be receiving the share.
Generally, the documentation that is required to be prepared will be contingent on several factors, which we will discuss below.
A. Individual and Corporate Shareholders
In instances where the transferor and transferees are either individuals or corporations, or a combination of both, there will be a difference in what is required in terms of documentation. In the case where there is a corporate shareholder involved on either side, the following documents will need to be prepared:
- Directors’ Resolutions in Writing (“DRIW”) to authorise a corporate representative to sign on the company’s behalf on all documents relating to the transfer
- Certificate of Appointment of Corporate Representative
Essentially, there are two things that the corporate shareholder will approve, (i) the appointment of an authorised individual to sign on the company’s behalf (as the company cannot sign); and (ii) the use of the Common Seal. However, while it is the norm for companies incorporated in Singapore to have a Common Seal, this practice is not common overseas. Hence, if the transferor or transferee is a foreign company, the wording on the relevant documentation may have to be amended accordingly to suit the circumstances.
For individual shareholders who may be based overseas, or for some reason, is unable to sign on the required documentation, the company has the option of preparing a Proxy Form, for the individual to appoint a proxy to sign on his or her behalf.
B. Pre-emptive Rights
Pre-emptive rights simply mean that the company’s existing shareholders will have the first rights to any share that is being transferred. To check if your company’s shareholders have pre-emptive rights, do review your company’s Memorandum and Articles of Association (“M&AA”), which will typically have a clause to state if pre-emptive rights are applicable.
An example of how this clause may be drafted in your M&AA is pictured below:-
Shares may be freely transferred by a Member or other person entitled to transfer to any existing Member selected by the transferor; but save as aforesaid and save as provided by Article 42 hereof, no shares shall be transferred to a person who is not a Member so long as any Member or any person selected by the Directors as one whom it is desirable in the interest of the Company to admit to membership is willing to purchase the same at the fair value.
Except where the transfer is made pursuant to Article 42 hereof the person proposing to transfer any shares (hereinafter called “the proposing transferor”) shall give notice in writing (hereinafter called “the sale notice”) to the Company that he desires to transfer the same. Such notice shall specify the sum he fixes as the fair value, and shall constitute the Company his agents for the sale of the share to any Member of the Company or persons selected as aforesaid, at the price so fixed, or at the option of the purchaser, at the fair value to be fixed by the Auditor of the Company in accordance with these Articles. A sale notice may include several shares, and in such case shall operate as if it were a separate notice in respect of each. The sale notice shall not be revocable except with the sanction of the Directors.
As evident in the sample above, there will be two conditions to be fulfilled before a transfer of shares can be completed:-
- A notice of transfer of shares will be sent out to all existing shareholders
- Existing shareholders agree to waive their pre-emptive rights
A company secretary will thus provide the following documents to fulfil the above conditions:
- Notice of Transfer of Shares to be sent to all shareholders;
- Consent for Waiver of Pre-emptive rights to be signed by all shareholders
Once again, dependent on whether the existing shareholders are individual or corporate shareholders, there may be minor differences in the type of documentation to be executed. However, where a Corporate Representative has already been appointed previously by the corporate shareholder to act on its behalf for all documents in relation to the transfer, the same Corporate Representative can also sign on the documentation required for this step.
Subsequent to steps (A) and (B), the following documents will need to be prepared and executed:-
C. DRIW to note the purchase / sale / acceptance of shares and authorise the affixation of the company’s Common Seal on any documents relating to the transfer
Depending on the reasons as to why the shares are being transferred, the company secretary will amend item no. 3 accordingly. Often, if there is an agreement signed between the transferor and transferee (such as a Sale and Purchase Agreement, Loan Agreement or Joint Venture Agreement), it is good practice to annex a copy of the said agreement to the DRIW.
In addition, the DRIW can also authorise specific individuals who may act on the company’s behalf to negotiate the said agreement or any other pertinent terms in relation to the transfer. This may not necessarily be the directors of the company and may be an employee of the company.
In situations that may require the company to engage a legal counsel or finance consultant to advise the company on the terms of the agreement, the appointment of the said professional should also be noted in the content of the DRIW. Likewise, the company secretary should also be authorised to make the relevant lodgment with ACRA and make the payment of the stamp duty with IRAS on the company’s behalf.
D. Instrument of Transfer to be executed by transferor and transferee
The Instrument of Transfer is an official document that signifies the transferor’s agreement to transfer and the transferee’s agreement to accept the shares. If individuals are signing the Instrument of Transfer, a witness will usually be required to sign as well. If corporate entities are signing instead, the corporate entities’ Common Seal may be required to be affixed.
As mentioned in (A) above, slight amendments to the Instrument of Transfer may be required if the transferor or transferee is a foreign entity. This can be discussed with your company secretary or legal counsel.
E. Working sheet relating to the transfer of Shares
The Working Sheet relating to the transfer of shares is a requirement by IRAS; and is used in determining the stamp duty that has to be paid. The stamp duty is calculated based on the purchase price or market value of the shares transferred, whichever is higher. To assist companies with the computation, IRAS has provided a stamp duty calculator on its website, which can be downloaded on their Calculators page.
In order to complete the Working Sheet, the company will require either its latest audited accounts, or the latest management accounts, as it will need to input the following information:
- Total assets
- Total liabilities
- Total number of issued shares
- Number of shares transferred
- Consideration received for the transfer
In its bid to encourage foreign investors and continue to drive Singapore’s dynamic economy, the Minister of Finance had announced during the Budget 2015 that there will be stamp duty relief on the transfer of unlisted shares for qualifying merger and acquisition deals.
Read More Budget 2015 – Overview of Tax Changes
F. Share Certificate
Last but not least, the Share Certificate is a legal document that represents ownership of the shares specified; and the issuance of the Share Certificate will be authorised by the affixation of the company’s Common Seal. For a transfer of shares, the following steps will take place:
- The transferor returns his or her Share Certificate to the company secretary;
- The company secretary will cancel the transferor’s share certificate and may issue a new Share Certificate if the transferor will continue to hold shares in the company subsequent to the transfer
- The company secretary will prepare and issue a new Share Certificate to the transferee
- The company secretary will update the company’s registers
- The company secretary will make the relevant lodgment with ACRA
It is particularly important that the transferor’s Share Certificate is cancelled prior to the issuance of the new Share Certificate. Otherwise, the ownership of the said shares could be disputed in future.