Shareholders Agreement 101: Terms and Conditions of Transferring Shares(Part 2 of 10)
By Joanne Hue, Updated: 2023-03-13 (published on 2023-02-03)
Transfer of shares is a process in which a shareholder may transfer the title of their shares to the transferee. Transfer of shares is a voluntary process for shareholders as shares are personal property. The transferability of shares is an important aspect of a company’s business model as it is an important incentive for individuals investing in company stock.
Shareholders may consider transferring their shares for various reasons. A founder may sell their shares to exit the company or increase funds for the company. An employee who is a part of an employee share scheme may sell their shares when they are changing their job. They may have a minority stake in a business and intend to acquire the value of their investment. There are procedural conditions and requirements that surround the transfer of shares. When an individual purchase and receives stocks in a company they receive a stock certificate that provides them with the details of their ownership. On deciding to transfer the shares, the holder may do so through the use of share transfer forms.
Conditions for Transfer of Shares
Not all shares are transferable. The provisions concerning the transferability of shares are in detail in the shareholder’s agreement. An agreement may entail a provision that prohibits a shareholder from transferring their shares. These provisions may also restrict the transferability of the share by detailing periods or the nature of the transferee to whom the share may or may not be transferred.
Likewise, the director of a company may hold the power to deny transference. A company director may have the right to refuse registration of transfer. Specific events may limit the powers of the shareholders depending on the agreement between the holder and the company.
A shareholder who wishes to transfer their shares must first have the obligation to make the offer to an existing shareholder or specified persons. This is known as pre-emption rights. They are common in private companies that intend to block third parties from obtaining shares in the company.
Procedural conditions for transferring Shares
If you are transferring shares in Singapore, you will require the relevant documents for the transfer of shares. These documents include the share certificate, Instrument of transfer, board resolution, a notice of transfer, Inland Revenue Authority of Singapore’s stamp duty acknowledgment, and the share transfer forms.
The preliminary step to transferring shares is to have a clear basis for the transfer. This is only relevant in the case the transfer is done through trade and not as a gift. For an individual planning to transfer their shares, it is advisable to appoint a lawyer for the preparation of the agreement of sale.
The agreement for the transfer of shares should clearly mention the price of the shares. However, the sale price may not be clear. It may not always be the actual worth of the share at the moment. Often the price of sales also incorporates the future profits that the prospective shareholder may obtain through their shares. In shareholder agreements that have tag-along clauses, often the price is fixed.
If the shareholder agreement contains a tag-along clause and a majority shareholder is transferring their shares, minority shareholders will have to sell their shares at the same price. Simultaneously, minority shareholders may compel a majority shareholder to transfer shares at the same price in case of a tag-along clause. Understanding the basis for the transfer is crucial to prevent fraudulent transfers.
Shareholders Agreements and its impacts on the transfer of shares
If you plan on transferring your shares, you need to consider any tag-along clause that is applicable to you. For instance, if you are intending to transfer your majority shares the prospective buyer may not be interested in purchasing shares of the minority shareholders. In this circumstance, you need to hold talks with minority shareholders prior to going forward with the transfer.
You may seek to waive any tag-along rights that are held by minority shareholders. If you can succeed in formally resolving similar matters before completing the transaction, it will prevent possible conflicts in the future. Ensuring that any drag-along clause has been complied with is crucial to the proper transfer of shares.
What does a transfer agreement consist of?
A share transfer agreement is mandatory if you are buying or selling a share. A polishes transfer agreement comprises the cover page, details concerning the transfer of shares, the price of the transfer, the cost of the transfer, terms, and conditions, notice, warranties, and signatures. The cover page includes the basic information about the transaction – including the name of the company, the transferor, and the transferee. Warranties and indemnities include information on the transaction with respect to agreement indemnities and agreement warrants.
The Terms and Conditions are the most important part of the transfer agreement. It lays the rules that parties agree upon to evade future conflicts. It mentions the provisions that adjudicate the contract. This may include liabilities, termination, payment terms, company needs, and payment terms.
Transfer of shares is a process in which a shareholder may transfer the title of their shares to the transferee. Transfer of shares is a voluntary process for shareholders as shares are personal property. Depending on the jurisdiction that governs the company, the transfer of shares has different procedural requirements. Tag-along clauses define the impacts of transfer by majority shareholders on minority shareholders and vice versa.