Procedure of Transfer of Shares

1. Introduction

An authorized capital of a company is divided into small parts. Every part is called share. The shares of a public company are moveable property. Public limited company offers the shares to public through prospectus.The person who purchases shares is called shareholder. Under companies ordinance 1984, a share holder can transfer his shares by following the procedure as laid down in the ordinance. Each share in a company shall have a distinctive number.

2. Relevant Provisions

Section 76 to 82 of companies’ ordinance 1984.

3. Definition of Share

According to Justice Farewell a share is the interest of the shareholders in the company. It is measured by the sum of money for the purpose of liability in the first place and interest in the second place. 

4. Kinds of Share

Following are the main kinds of share

i. Preference Shares

Those Shares which enjoy a right to receive a predetermined rate of dividend before the other share holders are called preference share.

ii. Ordinary Shares

These share get dividend from the net profits of the company after the fixed dividend on preference shares have been paid-up.

iii. Deferred Shares

Deferred shares are also called ‘Founder’ or ‘Management’ shares. Generally such shares are issued to the founder of the company in lieu of their services for the company rate of such shares is not fixed. Such share holder has a right to receive dividend only after all other kinds of shares have received their share according to the term of article.

5. Transfer of Share

Share is a movable property of a company. It can be transfer in the manner provided by the article of association of the company.

6. Who can transfer the share

A share holder has power to transfer his shares.

7. Determination of vale of shares

The value is measured by the nominal amount of the share and by the right and obligations relating to it as defined by the companies’ ordinance.

8. Allotment of shares

Allotment is the appropriation to a person of a certain number of shares. An application for share is an offer to take the share where as the allotment is acceptance to that offer by the company. The application can be withdrawn at any time before acceptance is communicated.

9. Restrictions on transfer of shares

Shares are freely transferable unless the company’s articles of associations impose restriction on such transfer from one person to another.

10. Procedure of Transfer of share

i. Application

An application for transfer of share is made transferor or transferee can make application for the transfer of share.

a. In case application is made by Transferor

Where the application is made by the transferor and the shares transferred are partly paid, the company should give a notice thereof to the transferee. If no objection is raised to the proposed transfer by the transferee within the thirty days from the date of receipt of the notice, the company may register the transfer.

b. In case Application is made by transferee

If the application is made by the transferee or shares are fully paid, no notice is necessary.

ii. Execution of Instrument of Transfer

The instrument of transfer must be executed both by the transferor and transferee. The particular of Instrument are (i) Name of the transferee, (ii) Address of the transferee, (iii) Occupation of the transferee.

iii. Delivery to Company

The instrument should be delivered to the company along with the certificate relating to the shares transferred.

iv. Stamps on Instrument

The instrument of transfer should be duly stamped.

v. Prescribed Form

The instrument of transfer should be in prescribed from

vi. Examination of Instrument of transfer

Instrument of transfer will be examined by the authority.

vii. Approval of Transfer

The transferred is presented to the board of director, where the transfer is approved.

viii. Issuance of New certification

New certificate is signed and sealed according to the regulations of the company and handed over to the new shareholder.

11. Circumstances when Transfer is refused by director of the company

Director of the company can refuse to register the share in the following circumstances:

i. If the transfer instrument is defective.

ii. If the transfer instrument is invalid.

iii. Company has lien on the shares.

iv. The calls on the shares are un-paid.

v. If transferee is not approved by the company.

12. Conclusion

To conclude I can say that, shares of a public company are movable property. They are transferable in the manner provided by the articles of association of the company. An application for the transfer to shares has to be made either by the transferor or by the transferee. The directors cannot refuse the registration of transfer of fully paid-up shares unless transfer instrument is defective or invalid. The court will not interfere with their discretion of refusal unless it can be shown that they did not act bona-fide.

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