The process of transfer of shares is enumerated in the Company Act, 1994 (hereinafter “the Act”), relevant regulations and circulars of the Registrar of Joint Stock Companies, and the constituting documents of the Company (e.g. Articles of Association). Provisions of section 38 and 39 of the Act dictates that the transfer of shares of a company shall not be lawful and valid unless –
- Instrument of transfer duly stamped containing signatures of both the transferor and transferee along with scrip be delivered to the Company;
- The Directors accord approval to the transfer of shares; and
- Registration of the transfer of shares by the Company and enter the name of the transferee in the Company Register, by omitting the names of the transferor.
In practice, the process for transferring shares of a private company in Bangladesh includes the following steps:
Step One: Due diligence (Review of relevant documents)
Before getting into the process, the prospective purchaser/transferee should conduct due diligence on the company documents, i.e. check and review the relevant documents. It is often found that the Articles of Association (hereinafter, “the AOA”) of the Company contains some restrictions on the transfer of shares. Other documents and agreements including the Shareholders’ Agreement may also contain a restriction on the transfer of shares. These restrictions are usually cleared by obtaining No Objection Certificates from relevant stakeholders.
The most common form of restrictions in the AOA comes in the form of pre-emption, which means that if a shareholder intends to sell some or all of his/her shares, such shares must first be offered to other existing shareholders of the company at a valuation determined by the Directors or the Auditor of the Company. Such shares are usually sold at an increased price (adding a premium over the face value of the shares). Valuation of the Company may also become an issue and therefore, the audited financial books should be checked to confirm whether the valuation corresponds to the actual numbers stated in the books of the Company.
It is also advisable to check for other forms of restrictions e.g. whether the Company has bank loans or not, and obtained clearance from such bank (as required by section 27A of the Banking Companies Act, 1991).
Step Two: Corporate Approvals and documentation
The shareholder intending to transfer the shares should serve a formal notice (in writing) to the Board of Directors of the Company (hereinafter “the Board”) about his/her plan to transfer the shares. The Board has the absolute discretion to refuse the transfer of shares as per section 38(7) of the Act. In general, the Board holds a board meeting (or EGM) to approve the share transfer. Furthermore, the Board may also issue a NOC to acknowledge that the pre-emption obligation has been fulfilled.
Step Three: Payment of the Share price
Once step two is completed, the purchaser/transferee should make the payment for shares. If both parties are Bangladeshi individuals or entities, then proof of payment of the prices is not required. However, if the purchaser/transferee is a foreign national or entity and the seller/transferor is local, then the Registrar (hereinafter “the RJSC”) shall ask for an Encashment Certificate from the bank, showing that the Company has duly received the payment for the shares. In such a scenario, the parties may need to comply with other regulatory requirements set by the Bangladesh Bank.
Furthermore, if the transferee is a foreign national or Non-Resident Bangladeshi, the transfer documents and affidavits in support of the transfer of shares must be consularised (i.e. certified by the authorized officer of the Bangladesh Embassy/High Commission, and counter-verified by the Ministry of Foreign Affairs and duly stamped by the Deputy Commissioner), as per the newly amended section 38(3)(b) of the Act.
Step Four: Execute Form 117 and payment of stamp duty
Once step three is completed, the transferring shareholder need to submit the required documents including the list of directors, audited financial statements of the Company, affidavit of share transfer, etc. and MUST visit the office of the Registrar (RJSC), as per the newly amended section 38(3)(a) of the Act. The main instrument of share transfer i.e. Form 117 needs to be signed before the Registrar at RJSC. The presence of the transferor is, therefore, mandatory. Although the law envisages commissioning options for those who are otherwise unable to appear before the Registrar, it has not yet been implemented due to logistical limitations as of February 2023.
Stamp duty is payable on the face value of each share. The rate is 1.5% of the value of the shares. Once Form 117 is signed, a copy of the signed Form should be delivered to the Company.
Step Five: Amendment of the Company Register and Issuance of Share Certificate
Once all the above steps are done, the Company needs to update its share registrar, share transfer registrar, and minutes registrar and issue a share certificate in favor of the new shareholder or amend the existing share certificate to reflect the changes.
What documents are usually required
- Form 117, duly filled out;
- An affidavit by the transferor/seller;
- Board Resolution by the company in an EGM approving the transfer of the shares; and
- Certificate of Transfer of Shares.
- No-Objection Certificates (if applicable)
- Letter of Resignation from the Board of Directors (if applicable)
- Letter of Authorization (if applicable)
In case of disputes
In case of disputed transfer or the allegations of fraud, error or undue influence, or misrepresentation, the affected party(s) may apply to the Company Court (i.e. High Court Division) under section 43 of the Act for rectification of share register i.e. to overturn the disputed transfer of shares. The Court has a wide discretion to scrutinize the matter upon examining necessary evidence adduced by the parties.
Disclaimer: This brief is for general awareness and academic purposes only, and it does not, and is not intended to, constitute or to be construed as legal advice. You are advised to obtain advice from an Advocate with respect to any particular legal matter.