The shareholder intending to sell their shares will be referred to as the “transferor”, while the shareholder intending to receive the transferred shares will be referred to as the “transferee”.
Some documents will always be relevant for the process:
1)Instrument of Transfer
2)Notice of Transfer
4)Share Certificate (the document which proves ownership of the shares)
5)Share Transfer Form
6)Inland Revenue Authority of Singapore (IRAS) stamp duty acknowledgement
When approached by a shareholder who intends to transfer their shares, the board should first advise the shareholder if there are any restrictions on the share transfer. For example, the company constitution usually provides that share transfers can only take place with board approval.
When should the board approve the transfer?
The share transfer can only take place with board approval; the board should then consider whether approving the transfer would be in the company’s interests.
For example, the following might be good reasons to deny the transfer:
The board has genuine concerns about whether the proposed new shareholder would act in a way that supports the company’s aims and values.
However, it would likely be inappropriate to deny a transfer request so as to “punish” a transferor for “disloyalty”.
Hence, when deciding whether to approve the share transfer, it is important that the board should record its decision and the reason for its decision in a properly-minute board resolution
Payment of stamp duty
ACRA does not charge any fee for updating the company’s register of members. The company should not charge any fee for processing the share transfer either.
Stamp duty will have to be paid within 14 days of the Instrument of Transfer being executed. (This is even if the shares are being transferred as a gift.) However, stamp duty is payable to IRAS for share transfers. Stamp duty is calculated with reference to the higher of the actual price paid for the shares or the actual value of the shares, at a rate of 0.2%.
The actual value of the shares is calculated by first taking the net asset value of the company (net assets less net liabilities as reflected in the latest annual accounts) and dividing that by the total number of shares in issue. Then, having found the value of each share, multiply it by the number of shares being transferred. This is very straightforward where there are only ordinary shares in issue. However, the party paying stamp duty will need to consult IRAS should there be multiple classes of shares in existence.
The transferor and transferee will usually decide amongst themselves who should be paying the stamp duty. (For example, the Instrument of Transfer may state who is to pay the stamp duty.) However if the parties have not agreed on this, then the transferee will be the one liable to pay stamp duty.
The party paying stamp duty should submit a Share Transfer Form to IRAS for stamping, i.e. for paying the relevant stamp duty. They can either go down to IRAS to get a physical stamp affixed to the Share Transfer Form in exchange for a fee, or complete the procedure online and keep a record of the online acknowledgement slip.
Documents should be stamped on time. In cases of late stamping, IRAS may levy a fee of up to $25 or 4 times the normal stamp duty payable, whichever is higher.
While paying stamp duty is primarily a concern for the shareholders rather than the directors, the directors should be conscious of their duty to act honestly and to use reasonable diligence. The directors may be in breach of this duty if the company’s reputation and profitability is affected due to inadequate advice being given to shareholders in this situation.