Transfer & Transmission of shares
Transfer of share
Shares are movable properties and transferable from one person to another in a manner provided by articles [sec. 30(1)]. But the fact of this transfer must be intimated to the company together with the share certificate or the letter of allotment. Shares can be lodged for transfer both by the transferor or the transferee. It is to be remembered that share certificate is not a negotiable instrument in the first place, but it can transfer hands subject to endorsement, registration and delivery by the company concerned. The transfer instrument duly executed by both parties and properly signed must be deposited to the company office together with the certificate [sec. 38(3)]. The Company Secretary will then place it before the Board for approval of that transfer and on approval he will endorse the name of the transferee at the back of the share certificate under authorized signature. The share certificate, with transfer endorsement, should be ready to be returned to the new owner within ninety days from the date of lodgment for transfer [sec. 158(1)]. This time limit, according to DSE listing regulations, however, is 45 days and as per the SEC - 7 days which is puzzling indeed. The important statutory provision in this regard is that ‘if a company refuses to register the transfer of any shares or debentures, the company shall, within one month from the date on which the instrument of transfer was lodged with the company, send to the transferee and the transferor notice of the refusal’ [sec. 38(4)]. Failure to do so may lead to legal complications. The Act provides heavy fine as punitive measures - “Taka one hundred for every day during which the default continues’ [sec.38(5)]. The signature of the transferor on the transfer instrument is vital and, save and except other particulars, is the only source of checking the genuineness of the intention to transfer. It is, as such, the duty of the Company Secretary to compare the signature of the transferor with his admitted signature kept in the office. For this purpose specimen signatures of all shareholders should be called for and preserved in a separate card index in alphabetic order. The Secretary still cannot shrug off his responsibility in the event of a fraudulent transfer.
It is, therefore, good as a practice to notify both the parties after endorsement of each transfer if, however, the volume is not too large.
The formalities for transfer of debentures are somewhat the same except that those are to be recorded in separate registers. Unless a particular form is prescribed in the articles, the transfer may be effected in the form prescribed in reg. 19 or in any usual or common form. The form o 117 supplied by the Registrar’s office (or a photocopy of same) is also largely used.
Process of Share Transfer
In practice, the process for transferring shares of a private company in Bangladesh includes the following steps:
Step One: Due diligence (Review of relevant documents)
Before getting into the process, the prospective purchaser/transferee should conduct due diligence on the company documents, i.e. check and review the relevant documents. It is often found that the Articles of Association (hereinafter, “the AOA”) of the Company contains some restrictions on the transfer of shares. Other documents and agreements including the Shareholders’ Agreement may also contain a restriction on the transfer of shares. These restrictions are usually cleared by obtaining No Objection Certificates from relevant stakeholders.
The most common form of restrictions in the AOA comes in the form of pre-emption, which means that if a shareholder intends to sell some or all of his/her shares, such shares must first be offered to other existing shareholders of the company at a valuation determined by the Directors or the Auditor of the Company. Such shares are usually sold at an increased price (adding a premium over the face value of the shares). Valuation of the Company may also become an issue and therefore, the audited financial books should be checked to confirm whether the valuation corresponds to the actual numbers stated in the books of the Company.
It is also advisable to check for other forms of restrictions e.g. whether the Company has bank loans or not, and obtained clearance from such bank (as required by section 27A of the Banking Companies Act, 1991).
Step Two: Corporate Approvals and documentation
The shareholder intending to transfer the shares should serve a formal notice (in writing) to the Board of Directors of the Company (hereinafter “the Board”) about his/her plan to transfer the shares. The Board has the absolute discretion to refuse the transfer of shares as per section 38(7) of the Act. In general, the Board holds a board meeting (or EGM) to approve the share transfer. Furthermore, the Board may also issue a NOC to acknowledge that the pre-emption obligation has been fulfilled.
Step Three: Payment of the Share price
Once step two is completed, the purchaser/transferee should make the payment for shares. If both parties are Bangladeshi individuals or entities, then proof of payment of the prices is not required. However, if the purchaser/transferee is a foreign national or entity and the seller/transferor is local, then the Registrar (hereinafter “the RJSC”) shall ask for an Encashment Certificate from the bank, showing that the Company has duly received the payment for the shares. In such a scenario, the parties may need to comply with other regulatory requirements set by the Bangladesh Bank.
Furthermore, if the transferee is a foreign national or Non-Resident Bangladeshi, the transfer documents and affidavits in support of the transfer of shares must be consularised (i.e. certified by the authorized officer of the Bangladesh Embassy/High Commission, and counter-verified by the Ministry of Foreign Affairs and duly stamped by the Deputy Commissioner), as per the newly amended section 38(3)(b) of the Act.
Step Four: Execute Form 117 and payment of stamp duty
Once step three is completed, the transferring shareholder need to submit the required documents including the list of directors, audited financial statements of the Company, affidavit of share transfer, etc. and MUST visit the office of the Registrar (RJSC), as per the newly amended section 38(3)(a) of the Act. The main instrument of share transfer i.e. Form 117 needs to be signed before the Registrar at RJSC. The presence of the transferor is, therefore, mandatory. Although the law envisages commissioning options for those who are otherwise unable to appear before the Registrar, it has not yet been implemented due to logistical limitations as of February 2023.
Stamp duty is payable on the face value of each share. The rate is 1.5% of the value of the shares. Once Form 117 is signed, a copy of the signed Form should be delivered to the Company.
Step Five: Amendment of the Company Register and Issuance of Share Certificate
Once all the above steps are done, the Company needs to update its share registrar, share transfer registrar, and minutes registrar and issue a share certificate in favor of the new shareholder or amend the existing share certificate to reflect the changes.
What documents are usually required
- Form 117, duly filled out;
- An affidavit by the transferor/seller;
- Board Resolution by the company in an EGM approving the transfer of the shares; and
- Certificate of Transfer of Shares.
- No-Objection Certificates (if applicable)
- Letter of Resignation from the Board of Directors (if applicable)
- Letter of Authorization (if applicable)
Transmission
Transfer of shares through sale or otherwise is a voluntary act of the transferor or the transferee. But transmission of shares is an involuntary act resulting from the operation of law due to death or insolvency of a shareholder. The ownership of shares of a deceased member, in such a case, vests in his heirs or legal representative. A succession certificate from the court of competent authority is the legal requirement in case of transmission of shares. However, the documentary entries are the same for transfer or transmission of shares in the books of the company.
Blank Transfer
Transfer without registration is blank transfer. Blank transfer facilitates spot trading of shares without registration at the end of the company concerned. A share certificate together with the relevant transfer instrument attains somewhat of a liquidity status when signature of the transferor is verified by the company in the transfer instrument. This verification is obtained only to grease acceptance of the share certificate by the prospective buyer. It is thus ready for ownership by mere possession. Until the buyer wants to register himself as transferee by endorsement on the share certificate, he can continue trading on the same. This deal is called ’transfer in blank’ and can be operated till the next following book closure of the company concerned. This practice takes place mostly for shares having fluctuating quotations. Blank transfer emerged as a helpful practice to avoid the stamp duty when duty was applicable on transfer of shares.
Transfer by joint holders
It is not always that one individual will hold shares in his exclusive name. More than one individual may be registered as the holders of shares. The formalities in this case is the same with the exception that the person named first will be treated as the contact person for all purposes. This rule of preference will descend from top order. This means that if the first one dies or is not available for whatever reasons, then the next individual will be recognised by the company. This practice is also to be followed in cases of voting in company meetings. For example, there are four persons holding shares jointly. In a meeting of shareholders who will vote? It is the person first named in the list. If he is not there, then the person named next, if he is present, and it will follow this way. In case of transfer, however, all the surviving joint holders must sign on the transfer instrument.
In case of disputes
In case of disputed transfer or the allegations of fraud, error or undue influence, or misrepresentation, the affected party(s) may apply to the Company Court (i.e. High Court Division) under section 43 of the Act for rectification of share register i.e. to overturn the disputed transfer of shares. The Court has a wide discretion to scrutinize the matter upon examining necessary evidence adduced by the parties.
Reference: https://skmahdi.com/2023/03/step-by-step-share-transfer-of-a-private-company-in-bangladesh/ & Handbook for Company Secretary by Mugtadir’s