Sections 65 and 66 of the Companies Act 1997 set out how a share changes hands.
Sections 65(1) to (3) — the mechanics
(1) Subject to the constitution, shares may be transferred by entry of the name of the transferee on the share register.
(2) A form of transfer signed by the present holder, or by his personal representative, shall be given to (a) the company, or (b) an agent of the company who maintains the share register under section 67(3).
(3) The form of transfer shall be signed by the transferee.
Both signatures are required. And under section 40(2) the transfer is effected by the register entry — not by the form, not by payment. Until the entry is made, the transferor remains the shareholder for every purpose of the Act.
Section 65(4) — the company must register, unless
(a) the board resolves within one month of receipt to refuse or delay registration, and the resolution sets out in full the reasons for doing so; and
(b) notice of the resolution, including those reasons, is sent to the transferor and the transferee within five days of the resolution being passed; and
(c) the Act or the constitution expressly permits the board to refuse or delay registration for the reasons stated.
The board must act within one month, give full reasons in the resolution itself, notify both parties within five days, and be able to point to an express power in the Act or the constitution covering those particular reasons.
A board with no constitutional power to refuse cannot refuse at all — because under section 40(1) a share is transferable subject to any limitation or restriction in the constitution, and there is no residual discretion. This is the opposite of the old law, under which directors commonly had an unfettered power to decline a transfer.
Subject to the constitution, the board may refuse or delay registration where the holder has failed to pay the company an amount due in respect of those shares — whether as consideration for the issue, or as sums payable under the constitution.
Section 65(6) — notifying the Registrar
(a) the company is subject to a listing agreement with a stock exchange; or
(b) the total number of shares transferred since incorporation or the last annual return is less than 50% of the issued shares; or
(c) the company submits its annual return within one month of the date of entry of the transfer.
Failure to comply with subsection (4) or (6) is an offence by the company (penalty under section 413(1)) and every director (section 414(1)).
Paragraph (b) means routine small transfers need no separate notice — they are picked up by the annual return. But once cumulative transfers since the last return reach 50 per cent of the issued shares, the change of ownership is significant enough that the Registrar must be told at once. Companies undergoing a change of control should watch this threshold.
Section 66 — transfers by operation of law
Shares in a company may pass by operation of law notwithstanding the constitution of the company.
However tightly a constitution restricts transfers, shares still pass on death to the personal representative, on bankruptcy to the trustee, and on a vesting order or amalgamation. Section 66 overrides the constitution for these purposes.
Sections 73 and 74 then allow the personal representative or the trustee of a bankrupt to be registered as holder in that capacity notwithstanding the prohibition on entering trusts in section 72, and section 40(3) allows a personal representative to transfer a share even though they are not themselves a shareholder.
What a constitution can do is provide for a compulsory transfer after the event — requiring the representative or trustee to offer the shares to the continuing shareholders at a stated price. That is the standard drafting answer.
Section 77 — exemptions
The Registrar may, by notice in writing and on such terms and conditions as the Registrar thinks fit, exempt from any or all of the provisions of Divisions 8, 9 and 10 — that is, transfer, the share register and share certificates — (a) any company or class of companies; or (b) any transaction or class of transactions. A person who breaches any term or condition imposed by the Registrar is guilty of an offence.
This is the machinery that accommodates electronic and depository settlement systems, where transfer by paper form and register entry does not fit. Note that both section 40(2)(b) and section 49 expressly contemplate an exemption altering when a share is transferred or issued.
Transferring shares in practice
- Check the constitution for pre-emption rights, consent requirements and permitted-transferee provisions. Under section 32(1)(b) these are enforceable by one shareholder directly against another.
- Check for unpaid amounts — section 65(5) allows the board to refuse while money is outstanding on the shares.
- Complete a transfer form signed by both transferor and transferee.
- Deliver the share certificate with it. Under section 75(2) a transfer shall not be registered unless the form is accompanied by the certificate, or by evidence of its loss or destruction and, where required, an indemnity.
- Enter the transferee on the register — that is the moment of transfer.
- Cancel the old certificate (s 75(3)) and issue a new one within one month (s 75(1)).
- File the section 65(6) notice unless an exception applies.
- Consider stamp duty and, for a foreign transferee, the Investment Promotion Act 1992.
The transferee may apply under section 71 for rectification of the register, compensation, or both — and compensation may be ordered against the company or a director. A section 142 injunction and, in an appropriate case, section 152 are also available. Section 70 imposes on each director a personal duty to take reasonable steps to ensure transfers are promptly entered.
Sources
- Companies Act 1997 — ss 32, 40, 49, 65–77, 142, 152, 215, 413, 414
- Investment Promotion Act 1992
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.