The Procedure for Transferring Company Shares

Last revision: Last revision:January 31, 2022
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Shares are units of ownership interests in a company that makes up a company's share capital. They are the tangible properties that are capable of being transferred to another by way of sale or gift. Any shareholder can decide to transfer their shares to another party provided that such transfer is done according to the company's Articles of Association and the Companies and Allied Matters Act, 2020. This article will discuss the major types of shares, the party that can transfer shares,

and the procedure for share transfer under the law.

Classes of Shares

According to the law, a company has the power to issue various classes of shares. However, in practice the two major classes of shares that are often issued are as follows:

- Preference shares: This type of shares entitles the holder to a fixed dividend, and the payment of preference shareholders take priority over the ordinary shares dividends. This means that upon declaration of dividends, the holders of preference shares are paid before ordinary shareholders, and preference shareholders are paid a certain amount, according to a fixed percentage.

- Ordinary shares: The ordinary shareholders do not receive a fixed sum of money (to be paid as dividends) by the company, and the type of shares rank lower in priority than preference shares, and if the company winds up, preference shareholders are paid first before ordinary shareholders.

What is a Share Transfer?

This is when a shareholder sells or transfers their shares to another party, who is either an existing shareholder or a third party either by way of sale or gift, which results in a change in the share structure of the company. According to the new Companies and Allied Matters Act, 2020, a shareholder is prohibited from transferring their shares to a non-member of the company without first offering the same shares to the existing shareholders of the company, except the company's Articles of Association state otherwise.

If a shareholder transfers all its shares to the purchaser, the shareholder divests its entire interest in the company shares and ceases to be a shareholder of the company. However, if only part of the shares is transferred, the shareholder divests its interest in the number of shares that have been sold but remains the holder of the unsold shares.

Who Can Transfer Shares?

Any party that holds shares in a company can transfer shares to another subject to any share transfer restriction provided in the Articles of the company. A shareholder is an individual or entity that holds at least one share in a company. Under the law, a minor can be a shareholder of a company, but it is unlikely for a minor to enter a binding contract for the sale or transfer of their shares as they cannot enter binding contracts.

A proxy or agent representing a shareholder can, through a Power of Attorney, enter a binding contract to sell and transfer the shareholder's shares to another party.

A company may restrict the transfer of shares by including a right of first offer clause in its Articles of Association. This clause requires that a shareholder who intends to sell its shares should notify the existing shareholders in writing first to allow them to purchase the transfer shares. If the existing shareholders refuse to buy the transfer shares, the shares can be sold and transferred to third parties.

How to Transfer Company Shares

The procedure for the transfer of shares will be divided into two categories:

1. When the Shareholder Sells Their Entire Shareholding Interest

When a shareholder decides to transfer its entire shares to another party, the shareholder is required to execute a Share Transfer Form or/and Share Sale and Purchase Agreement in favour of the purchaser and deliver it to the company. In addition to this, the shareholder will also submit its share certificate to the company.

Upon the deposit of the share transfer form and Share Certificate, the company will register the transfer and issue only one new share certificate to the new shareholder. The selling party automatically ceases to be a shareholder of the company as the name of the shareholder is removed from the register of members of the company.

2. When the Shareholder Sells Part of Their Shareholding Interest

When a shareholder decides to transfer part of its shares in the company and not the entire shares, the shareholder is required to sign a Share Transfer Form, stating the number of shares they are transferring and the purchase price.

The shareholder will then deliver the share transfer form together with the shareholder's share certificate to the company. The company will register the purchaser as a shareholder of the company.

Upon registration, the company will issue a new share certificate (reflecting the transfer shares) to the purchaser (the new shareholder) and another share certificate to the shareholder whose shares have been transferred.

Post-Incorporation Filing

After completing the transfer, the company is should notify the Corporate Affairs Commission and file form CAC 2A (Return of Allotment) together with the following documents:

- a Board Resolution of the company whose shares have been transferred, approving the share transfer;

- if either the selling party or the purchaser is a company, a Resolution of the Board of Directors from their respective companies authorizing and accepting the share transfer.

About the Author

Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.

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