Share Transfer

Singapore company directors, shareholders in many cases need to use share transfer to achieve the corresponding purpose, so what should we pay attention to in the transfer of equity in Singapore, please refer to the Singapore private company equity transfer strategy brought to you by Singapore FOZL today.
It’s crucial.
General share transfers occur in the following situations:
Shareholders with a minority stake in the business hope to realize their return on investment through equity transfer.
The company uses an employee stock ownership plan. Employees change jobs after they have already acquired shares and need to sell their shares through equity transfer.
The founder of the company sells shares through equity transfer in order to raise funds or withdraw from the company.
Crucially: the need to ensure shareholders follow the correct procedures and pay the appropriate stamp duty when selling shares.
In this way, there can be no objection on the grounds that the transfer is invalid, nor can there be any allegation of non-performance of director’s duties.
How to Handle the Transfer of Share Before making the application for share transfer
Prepare required documents
  • Instrument of Assignment
  • Notice of Assignment
  • Board resolution
  • Certificate of share (document certifying ownership of shares)
  • Share Transfer Form
  • Singapore IRAS Stamp Duty
  • Confirmation Depending on the circumstances,
  • other documents may be required, such as a waiver of pre-use consent Provide basis for transfer
The transfer or needs to be advised to prepare a contract for the sale of shares (if they sell 100% of the shares in a private company, then have an appropriate share purchase agreement, for example).
Most crucially, the contract should make the sale price clear. For example, if the amount payable is to be adjusted according to the future profits of the company, the sale price may not be easy to calculate. However, sometimes the price payable may be predetermined. This is common in cases where there is a shareholder agreement with a “drag-along” drag-along “clause or a” tag-along “label clause.

“Label Terms”

Grant minority shareholders the right to purchase shares on the same terms (including price) as major shareholders. It imposes restrictions on major shareholders, that is, major shareholders must not prompt outsiders to tender for shares of minority shareholders on the same conditions before selling their shares to outsiders.

It states that if a major shareholder wishes to sell its shares, it must first sell its shares to minor shareholders. If a minority shareholder refuses to buy these shares, they can decide to “list” with the selling shareholder and then sell their shares to a third party. Safeguard measures that can be taken include:

  • Set a minimum price for shares so that major shareholders cannot force them to sell shares at less than a fair price;
  • Provisions that limit the period during which major shareholders can use the “label clause”, such as the expiration of the period or ensuring the minimum stock price only after the company reaches a certain level of profitability;
  • Allow minority shareholders to find alternative buyers for all higher value stocks within a certain period of time before the minority shareholders decide whether to exercise their “follow” options. If the clause is included in a shareholder agreement, the shareholder agreement must also allow minority shareholders to require the minority shareholders to decide to “follow up” on the shares sold to the highest bidder;
  • It is stipulated that in the case of a sale, only the major shareholder can make a company statement and guarantee to the buyer and be responsible for it, because the major shareholder controls the management and operation of the company.
“Drag and Drop Terms”

Seller shareholders are empowered to force all other shareholders to sell their shares to third-party buyers, the terms being the same as those approved by the shareholders. If a major shareholder wants to sell it to a third-party buyer who is interested in acquiring the company, it can prevent a minority shareholder from refusing to sell its shares.


For example, if a shareholder agreement contains a drag clause, then if a major shareholder sells its shares to a third party, the minority shareholders must also be forced to sell their shares at the same price. Alternatively, if the shareholder agreement contains a labeling clause, the minority shareholder can also force the major shareholder to require the buyer to also purchase its shares at the same price.

Understanding the basis of transfers helps prevent fraudulent transfers

Company-level share transfer restrictions

When a shareholder intending to transfer shares contacts the board of directors, the board of directors should first inform the shareholders of any restrictions on the transfer of shares .

For example, a company’s articles of association often stipulate that a share transfer can only take place with the approval of the board of directors. (If your company has fully adopted Singapore ’s “Company Law”, the relevant provisions that require the board to approve the transfer of shares will become Article 24 of the “Company Law.”

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Although it is usually only necessary to resolve the board’s approval steps when the transferor presents the share transfer form to the board, it is best for shareholders to discuss with shareholders as early as possible their intention to transfer shares to the board. This allows directors and other board members to indicate their positions in advance.

Board needs to consider

If a share transfer is made only with the approval of the board, the board should consider whether it is in the company’s interest to approve the transfer.

For example, the following may be good reasons to refuse a transfer:

The board (possibly a major shareholder of the company) felt unable to work effectively with the proposed new shareholders. This may especially apply to small companies where shareholders have close relationships with company management.

The board is genuinely concerned about whether the proposed new shareholders will support the company’s goals and values. This is especially true in companies with a small number of shareholders, and it is expected that substantial shareholder input will be required in various management decisions.

However, it is not appropriate to “punish” the transferor by rejecting the transfer request.

When deciding whether to approve a share transfer, the board of directors shall record its decision and the reasons for its decision in an appropriate board resolution. The decision of the board of directors and its reasons shall be immediately communicated to the assignor.

Importance of Priority Stock Sale

Before selling its shares to outsiders, the transferor must also first sell its shares to all existing shareholders in proportion. Such pre-emptive rights may be specified in the company’s articles of association or in shareholder agreements.

If other shareholders have the right of first refusal, they need to send them a notice of share transfer to indicate whether they want to exercise their right of first refusal. Assuming that they do not want to exercise their right of first refusal, they should all sign a Consent to Abandon the Right of Preemption .

 

It is important to follow this procedure and obtain relevant consent. This will reduce the possibility of subsequent challenges or discovery of invalid assignments, which is likely to create administrative difficulties for directors.

Agreement between shareholders affecting transfer

All applicable “drag clauses” or “tag clauses” that the assignor must comply with. For example, if they sell a majority stake, but the buyer does not want to buy the minority shareholders’ shares, they should communicate with the minority shareholders in advance.

In this case, it is recommended that the minority shareholders adopt the consent to grant the right to the labeling clause so that they waive their rights under the labeling clause. Formally addressing this issue in advance will prevent future transaction interruptions.

The board should also ensure compliance with all “dragging clauses” or “tagging clauses” or waive any rights under such clauses.

Making a Share Transfer Application

Enforcement of transfer instruments

In order to officially begin the transfer process, the assignor must sign a transfer letter with the assignee. The document will show that the assignor agrees to transfer its shares to the assignee and that the assignee agrees to accept the shares.

Request for transfer to the board

Next, the transferor shall submit a written share transfer request to the board of directors. The board then has 30 days to decide whether to approve the transfer. The decision of the board and its reasons shall be recorded in the board resolution.

If the board decides to refuse the transfer during this period, a written rejection notice must be sent to both the assignor and the assignee. However, the board of directors should refuse the transfer only for legitimate reasons related to the company’s interests.

Pay stamp duty

Stamp duty needs to be paid within 14 days after the transfer of the bookmark.

The assignor and the assignee will usually decide between them who pays the stamp duty. (For example, a transfer letter might state who is liable for stamp duty.) However, if the parties do not agree on this, the assignee will be the person liable for stamp duty.

The party paying the stamp duty is required to submit a share transfer form to IRAS to pay the relevant stamp duty. You can request a physical stamp from IRAS and affix it to the “share transfer form” in exchange for a fee, or you can complete the process online and keep a record of the online confirmation.

After the board approves the transfer of shares

Return of Share Certificate

If the board decides to approve the transfer, the transferor (or the person holding the original stock certificate) will need to return its original stock certificate to the company within 7 to 28 days of the written share transfer for cancellation or correction. Request.

The board can decide the exact deadline on its own, but it is best to submit the stock certificate as soon as possible so that the board can register the transfer in time.

Upon receipt of the stock certificate, the board of directors will have to submit a transfer notice to the Accounting and Corporate Regulatory Authority (ACRA) via the Bizfile + website.

Note: This transfer will only take effect if ACRA has updated the electronic register of company members (all private companies must submit to ACRA).

Issue new stock

The company must issue a new stock certificate to the transferee (or the person holding the new stock) within 30 days of the transfer to ACRA registration. This is usually the responsibility of a company secretary.

cost

ACRA does not charge any fees for updating the company’s membership register. The company should also not charge any fees for processing share transfers.

However, for share transfers, stamp duty is payable to IRAS. Stamp duty is calculated based on the higher of the price actually paid for the stock or the actual value of the stock (at a 0.2% tax rate).

The actual value of shares is calculated by first dividing the company’s net asset value (net assets less net liabilities reflected in the most recent annual accounts) by the total number of shares issued.

Then, after finding the value of each stock, multiply it by the number of stocks to be transferred. The situation of issuing only ordinary shares is very simple. However, if multiple shares exist, the party paying stamp duty will need to consult IRAS.

Documents should be stamped on time. In the case of stamp duty, IRAS may charge a maximum of S $ 25 or 4 times the normal stamp duty payable, whichever is higher.

It is worth mentioning that directors should be aware of their responsibility to act honestly and use reasonable due diligence to avoid inadequate advice to shareholders that could affect the company’s reputation and profitability.

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