Private limited companies in Singapore may appoint a minimum of 1 and up to 50 local or foreign shareholders. The shareholders of a company are considered its owners and they may wish to sell or transfer their shares for reasons such as retirement, gifting or raising funds. In this guide, we will refer to the original shareholder as the “transferor”, and the recipient as the “transferee”. Share transfers in Singapore are governed by the Accounting and Corporate Regulatory Authority (ACRA) and the Inland Revenue Authority of Singapore (IRAS). It is important that you execute share transfer procedures with a high degree of care to ensure that the transfers are not deemed invalid or fraudulent.
Prepare a contract
The first step to any share transfer is the establishment of the basis for the transfer. In most cases, a lawyer is appointed to prepare a contract for the transfer of the shares. As the sale price may either be fixed or pegged to the company’s future profits, the contract should state the basis of transfer clearly. If there are a few transferors comprising majority and minority shareholders, the agreement may sometimes include a ‘tag-along’ clause that require minority shareholders to sell their shares at a similar price.
Find out if there are any restrictions to share transfers in your company. While company directors normally do not have the right to refuse transfers, some transfers may require the board’s approval. It is thus good practice to discuss share transfer plans with the board before proceeding.In some cases, a consent for waiver of pre-emptive rights will be required. Pre-emptive rights refer to existing shareholders’ first rights to any share that is being offered. To check if your company’s shareholders have pre-emptive rights, refer to the relevant clauses in your company’s constitution.
Sign an instrument of transfer
To begin the share transfer process, the transferor will execute an instrument of transfer with the transferee. This document essentially confirms that both transferor and transferee are agreeable to the transfer of legal title of the shares. A transfer involving individual shareholders will require a witness, while a company’s common seal will be required if the transfer involves corporate entities. Individual shareholders who are based overseas may appoint a proxy to sign on his or her behalf.
Seek board approval
The share transfer will then be tabled. Before granting approval, the board typically reviews the proposed transferee, any conflicts of interest, as well as whether the business would still perform as effectively with the new shareholder on board. The board should raise concerns if any or arrive at a board resolution in writing within 30 days. If the board disapproves of the transfer, it should send a notice of refusal to both the transferor and transferee.
Pay stamp duty
Upon execution of the share transfer, the instrument of transfer must be stamped by IRAS within 14 days. The instrument usually states if the transferor or transferee will be paying the stamp duty. If this is not reflected in the document, the transferee will be liable as per the Third Schedule of the Stamp Duties Act.Stamp duty is usually taken to be 0.2% the higher of the purchase price, or the market value of the shares. To derive the market value of one share, the net asset value of the company is divided by the total number of shares issued. However, as companies have the freedom to issue different classes of shares with varying privileges (such as ordinary, non-voting, redeemable and preference shares), you may wish to engage a corporate services provider to prepare a working sheet for verification with IRAS on your company’s behalf.
Surrender of share certificate
Once the transfer is approved by the board, the transferor will have to surrender his or her original share certificate to the company secretary for cancellation. This should be done immediately but the board can set a deadline.
Submit notice of transfer
The company must then submit a notice of transfer to ACRA. As per the Companies Act, all companies in Singapore must maintain an accurate register of shareholders with ACRA. The effective date of notice of the share transfer would thus be based on the date of filing with ACRA. The company may authorise its company secretary to make the relevant lodgements with ACRA.
Issue new share certificate
The company secretary will next issue a new share certificate to the transferee within 30 days of which the transfer is lodged. This legal document signifies ownership of the shares specified and should bear the company’s common seal. A share certificate should also include the company’s name and registration number, the number of shares issued and details of the new shareholder.
Engage an Experienced Corporate Services Provider
Share transfer procedures usually come with statutory deadlines. For instance, late stamping of transfer documents may attract penalties. Engaging an experienced corporate services provider will help ensure that you are on track with share transfer deadlines as set out by the law. If there is a need to send documents overseas, a good company secretary will also advise you on best practices to avoid unforeseen delays.
For a greater peace of mind, let the professionals at Corporate Services Singapore support you in executing your share transfer. Whether you are looking for answers or more information on our corporate secretarial services, give us a call at 6602 8286 or email us at email@example.com to get started today.