SHARES - TRANSFER OF SHARES

As established, shares are personal property and are transferable subject to any restriction contained in
the constitution. A company cannot register a transfer of shares or debentures unless a proper
instrument of transfer, duly stamped (if chargeable to stamp duty), has been delivered to the company
and executed on behalf of the transferor as seen in Section 101(3) of the Companies Act 2019 (Act 992).
No formal transfer is required when a company purchases its own shares [Re Greene]. Directors of a
company may also have the power under the company's constitution to decline to register the transfer
of a share such as shares on which the company has a lien - the company can also decline to register
transfer of shares to a minor or person of unsound mind [Section 98(2)(4)].

A. TRANSFER OF SHARES

· Legal Transaction Involved In A Transfer Of Shares;

The purchase and sale of shares involves the following seperate and distinct legal transactions

1. A contract is agreed between the transferor and transferee. The transferor then holds the shares as a
trustee for the transferee(who has an equitable interest) until registration but is still a member of the
company and retains the right to vote as he chooses [Section 101(2)]. Where the selling entity is a
corporate body, it must support the sale of its shares with a board of director’s resolution approving the
sale of shares. The board resolution in effect approves the transaction, cancels the existing certificate,
and appoints the authorised signatories to execute the relevant documents which are necessary for the
completion of the sale transaction. A special resolution will however be required where the company is
issuing new shares out of its authorised shares to third parties []. Likewise, the purchasing entity, if a
corporate body, will require a board of director’s resolution approving the purchase of shares from the
selling entity. These resolutions must name the authorized signatory approved by the board to execute
all documents necessary for the completion of the transaction.

2. The transferee pays for the shares. Both the selling and purchasing entity must execute a Share
Purchase Agreement (“SPA”) detailing the terms and conditions of the contract. The SPA will indicate the
number of shares being transferred and the consideration (money) payable by the purchasing entity. It
further defines the mode and agreed payment terms between the parties. It must be noted that only the
authorised signatory must sign the SPA and it has to be stamped with the official stamp or seal of both
the selling and purchasing entities.The position remains as seen above in (1) except that now the
transferor must vote as the transferee directs. An unpaid transferor has the right to vote the shares free
from any obligation to comply with the transferee's requirements [JRRT (Investments) v Haycraft]

*** The position remains as in (2) above while the transfer is approved by the directors and the transfer
is stamped. Following the execution of the SPA by both parties, the document must be stamped at the
Lands Valuation Department of the Lands Commission. The SPA is a chargeable instrument and it is
required to be assessed and stamped in accordance with the assessment made by the commission. The
amount chargeable is usually a nominal fee. The Registrar Generals Department (“RGD”) accepts only
stamped SPAs for registration.

3. A share certificate must then be issued. A company after issuing out shares to an entity or individual
must issue a Share Certificate evidencing the transaction. The Share Certificate must be certified by one
director and the company secretary with an official company seal or stamp on the certificate. The
certificate usually indicates the number and class of shares, amount of money paid, or which remains
payable and the name and address of the shareholder.The Share Certificate is necessary because it is
prima facie evidence of ownership of the shares by the shareholder; thus, where the company or its
agent fraudulently or negligently makes a false certification and a purchaser acts upon the false
certification, the company shall be estopped in favour of such persons for any loss suffered by him in
reliance on the accuracy of the statements in the SC. Such loss would entitle that person to
compensation that had the statements been or continued to be accurate, the loss would not have been
suffered. NB. This estoppel would however not operate against the original allottee since he ought to
know of such an error. [Refer to Notes II on Share Certificates or Sections 55 & 56]

4. Registration of interest: After the successful execution of the SPA and the issuance of a share
certificate, the transferor or transferee of the shares must take steps to register the interest. By Section
101(3), despite anything contained in the constitution of a company or in a contract, that company shall
not register a transfer of shares or debentures unless a proper instrument of transfer duly stamped, if
chargeable to stamp duty, has been delivered to the company.

NB. Subject to sections 35, 102 and 103, a notice of a trust, express, implied or constructive or of any
equitable, contingent, future or partial interest in a share or debenture or a fractional part of a share or
debenture shall not be entered in the register of members or debenture holders or receivable by the
company. It follows that, the company is not bound by, or is not compelled in any way to recognise, any
other rights in respect of a share or debenture except an absolute right to the entirety of the share in
the registered holder; and accordingly until the name of the transferee is entered in the register in
respect of the share, the transferor remains, so far as concerns the company, the holder of the share
[Section 101(1) & (2)].

{***The documents required to be presented are the approved resolutions from both the seller and the
purchaser, stamped SPA between the parties, and the share certificate issued to the purchaser of the
shares***}.

5. The transferee's name is entered on the register of members. At this stage, the transferor ceases to
be a member of the company. The transferee becomes the member and acquires the legal title to the
shares.

· Restrictions On The Transfer Of Shares

In cases where the constitution of a company restricts the transfer of shares, a transfer must be
submitted to and approved by the board and any restriction must be the decision of the directors.
Section 98 of Act 992 is the basis for this power. It provides;
(1) Except as expressly provided in the registered constitution of a company, shares are transferable
without restriction by a written transfer in common form.

(2) Subject to section 322, the registered constitution of a company may impose restrictions on the
transferability of shares, including power for the directors to refuse to register a transfer and provisions
for compulsory acquisition or rights of first refusal in favour of other members or officers of the
company. The case of [Re Smith v Fawcett] highlights the power of refusal of directors. The right of first
refusal, also known as the right of pre-emption refers to situations where a member who wishes to sell
his shares must first offer the shares to other members of the company before he offers them to an
outsider. If the other members do not wish to take up the shares, the shares may then be sold to an
outsider [Ocean Coal Co. Ltd v Powell Duffyn Steam Coal Co Ltd]. Additionally, the right of pre-emption
may be enforced as between the members [Rayfield v Hands], and also by the company which may
obtain an injunction against a member who is not complying with the constitution on this matter [Lyle &
Scott Ltd v Scott's Trustees].

(3) A restriction shall not be imposed under subsection (2) on the transferability of any shares after the
shares have been issued unless the holders of the shares consent in writing to the transfer.

(4) Despite subsection (1), a company may refuse to register a transfer of shares to a person who is an
infant or to a person found by a court of competent jurisdiction in the Republic to be an infant or a
person of unsound mind.

NB. By Section 322, the constitution of a public company shall not impose a restriction on the right to
transfer shares of the company and if the constitution purports to impose that restriction, it shall be
void. This however does not prohibit a restriction on the right to transfer shares on which there is an
unpaid liability; or preclude a company from refusing to register a transfer of shares to a person who is
an infant or to a person found by a court of competent jurisdiction to be of unsound mind.

Again, the other members of a company(private) may give a written waiver of their rights of pre-
emption, bearing in mind that a private company will normally have articles giving the directors power
to reject a transferee.

· Rejection Of Transfer

Where the constitution gives directors power simply to refuse or approve the registration of transfers,
that power must be exercised in good faith, and this may be tested in the courts if it appears that the
directors have rejected a transfer for purely personal reasons [Re Accidental Death Insurance Co.,
Allin's Case]. Where however the power to reject is exercisable for reasons specified in the articles, the
transferee need not be told which is the reason for this rejection if the constitution so provides [Barry &
Stewart v Tottenham Hotspur FC]. The position is the same where the constitution merely provides that
the directors may reject a transfer 'without assigning reasons therefore' - these are much stronger
because the directors are not required to give reasons at all for any rejection.

Where a company refuses to register a transfer, the company shall, within two months after the date on
which the transfer was lodged with the company, send to the transferee and transferor notice of the
refusal. Again, where a company defaults in complying with subsection (3) that company and every
officer of the company that is in default is liable to pay to the Registrar an administrative penalty of five
hundred penalty units [Section 101(7) & (8)].

B. TRANSMISSION OF SHARES

This occurs where the rights encompassed in the holding of shares vests in another by operation of law
and not only by reason of transfer. It occurs in the following cases;

1. Death of a Shareholder: According to Section 102(1), in the case of the death of a shareholder or
debenture holder, (a) the survivor or survivors, where the deceased was a joint holder, and (b) the legal
personal representatives of the deceased, where the deceased was a sole holder or last survivor of joint
holders, shall be the only persons recognised by the company as shareholders or debenture holders.

2. Bankruptcy of a Shareholder: On the bankruptcy of a shareholder, the right to deal with the shares
passes to the legal representative, reciver or trustee in bankruptcy or a person, by operation of law. On
the evidence being produced that the company may properly require, such a person may be registered
personally as the holder of the share or debenture or transfer the same to any other person, and the
transfer shall be as valid as if that person had been registered as a holder at the time of execution of the
transfer. The company has the right to decline registration of such a transfer as it would have had in the
case of a transfer by the registered holder but does not have a right to refuse registration personally of
that person [Section 102(2) & (3)].

NB. A person on whom the ownership of a share or debenture devolves by reason of that person being
the legal personal representative, receiver, or trustee in bankruptcy of the holder, or by operation of law
is entitled, before registration personally of that person or a transferee, to the same dividends, interest
and other advantages as if that person were the registered holder and, in the case of a share, to the
same rights and remedies as if that person were a member of the company, but that person is not
entitled before being registered as a member in respect of the share, to attend and vote at a meeting of
the company [Section 102(4)]. For this reason, the company may at any time give notice requiring that
person to elect to be registered personally or to transfer the share or debenture, and if the notice is not
complied with within ninety days, the company may suspend payment of the dividends, interest or any
other moneys payable in respect of the share or debenture until the requirements of the notice have
been complied with [Section 102(5)].