TRANSFER OF SHARES
TRANSFER OF SHARES
Transfer of shares means shares are passed from one person to another.
This must be distinguished from issue of shares, where the company issues the
shares to an individual.
Shares can be transferred: s 98, CA 1965. However, with regard to
a private company, s 15(1) of CA 1965 places a restriction on the right
to transfer shares. Nevertheless, the right to transfer shares cannot be
prohibited.
The restrictions to the transfer of shares must be expressly stated in
the A/A – GREENHALGH v MALLARD [1943] 2 All ER 234. Therefore, a member
is bound by the restrictions provided in s 33(1) of CA 1965 which stated
that a member is bound by the company’s M/A and A/A.
When the BOD refuses to register a transfer of shares, the reasons for
refusing the transfer must comply with the restrictions as provided in the A/A.
Examples of restrictions include:
The A/A gives absolute discretionary power to the BOD.
Even in such a situation the power should be exercised in the interests of the
company – KESAR SINGH v SEPANG OMNIBUS CO LTD [1964] MLJ 122. If the
directors were to give their reasons for their refusal, the court will evaluate
whether they were sufficient – LIM OW GOIK v SUNGEI MERAH BUS CO LTD [1969]
2 MLJ 101.
The A/A contains a pre-emption clause. A pre-emption
clause means the existing shareholders have a right to be offered the shares
before a shareholder offers his shares to an outsider. If the shareholder
offers to an outsider first, he is in breach of the pre-emption clause and therefore
the BOD has a right to refuse to register the transfer of shares.
If refusal to register a transfer of shares amounts to oppression,
the affected shareholder can bring an action under s 181 of CA 1965.
Forged transfer means the
transfer is unauthorised. It is a nullity. It is not valid. Therefore ownership
of the shares will not pass. Usually the situation is as follows:
A is the original owner. B forges a transfer
without anyone’s knowledge, i.e. A or the company. B is then
issued a share certificate in his name which shows he is owner of the shares. B
then transfers the shares to C who has no knowledge that it is a forged
transfer. The company then issues a share certificate to C who is now
the owner of the shares. A now realises the position. The Register of
Members has C’s name as the member.
It should be noted that the ownership of the shares
will not pass to the transferee, i.e. B or C. This is so even if
the transferee has provided value for the shares and acted in good faith, i.e.
he has no knowledge that it is a forged transfer. Therefore the ownership of
the true owner is protected, i.e. A.
However, A must make an application to the
company to restore his name to the Register of Members. This is because at
present, the transferee’s name, i.e. C is in the register. In such a
case, the transferee (i.e. C) is no longer a member of the company
because the register has been rectified. His ownership is affected. What should
C do then? C has no knowledge that it is a forged transfer.
The transferee (i.e. B) was registered under a
forged transfer. Therefore, the share certificate issued to him is not valid.
In fact he is liable to compensate the company for any loss suffered. The
subsequent transferee (i.e. C) did not make the forged transfer. He does
not get back his shares since the true owner’s name has been restored.
Furthermore, he cannot obtain ownership from a person who has no ownership
himself. This is based on the rule of ‘nemo dat quod non habet’.
However, he has two options – he can bring an action
against B who committed the forgery; or he can bring an action against
the company for compensation.
In such a case, the company may refuse to pay
compensation to the subsequent transferee on the ground that it is not
responsible for the forgery. In other words the company is denying C’s
rights. In such a case the subsequent transferee (i.e. C) is advised to
rely on the doctrine of estoppel. The purpose of the doctrine is to stop the
company from denying the rights of the subsequent transferee. In order for the
doctrine to apply, the following must be satisfied:
a representation is made by the company that the
transferor has rights on the shares
the representation is made to the transferee, and
the transferee must have relied upon the representation
before buying the shares.
If the doctrine applies, the company will have to
compensate the loss suffered by the subsequent transferee – RE BAHIA & SAN
FRANCISCO RLY CO (1868) LR 3 QB 584.
TRANSMISSION OF
SHARES
Transmission of shares means the shares passes to another involuntarily. This could
happen as a result of death, mental or physical incapacity or bankruptcy of a
shareholder.
Note that this will not affect the company due to the concept of
separate legal entity. This is to be contrasted with a partnership firm.
TRANSFER OF SHARES
Reviewed by Kamaruddin Mahmood
on
4:14:00 PTG
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