In an incorporated business (also known as corporation), a business firm’s income and assets are kept separate from the income and assets of an owner or investor. There may be one or multiple shareholders in an incorporated entity and the shareholders have the power to select the Board of Directors responsible for the supervision of the day-to-day activities of a corporation.
The shareholders of an incorporated business can choose to sell/transfer the shares at any time. However, the process of transfer/sell needs to be carried forward as per any company’s constitution or in accordance to the procedures specified in the Singapore Companies Act, Chapter 50. A shareholder may want to sell the shares due to following reasons.
A shareholder had minority stake in the company and wants to realize the value of the investment.
A shareholder received the share as part of an employee share scheme and wants to sell the share as per a company’s guideline before moving on to another job or company.
The founder of a company may want to sell a part of the shares to the investors in order to raise the capital for the expansion of business.
Change of Shareholder in Singapore
It is essential to have the following documents before the transfer of share.
Notice of Transfer
Instrument of Transfer/Share Transfer Form
Share Certificate (a document that attests to the ownership of the shares)
Share Transfer Form
Stamp duty acknowledgement by IRAS (Inland Revenue Authority of Singapore)
It may even become necessary to submit consent for waiver of Pre-Emption Rights (if Pre-Emption Rights Clause are in Constitution of the Company) when transferring the share.
The documentation for the share-transfer process depends upon the type of transfer or and transferee, as a transferor or transferee may be individuals or corporations.
One of a company’s directors has to inform the sellers if there is any restriction on the transfer of shares.
It is essential to have Directors’ Resolutions in writing along with a certificate for the appointment of corporate representative for the completion of ACRA transfer of shares form.
The Board of Directors can appoint a corporate representative to act on behalf of a company and can sign all documents pertaining to the transfer after having the resolutions and certificate.
The corporate shareholders have to approve the use of Common Seal.
A party to the transfer of shares may be unable to use the Common Seal in order to authenticate the document. In this scenario, there has to be relevant documentation to explain the circumstances.
Individual shareholders may not be able to sign the necessary documentation. In this scenario, a company needs to prepare a Proxy Form enabling every individual shareholder to appoint a proxy who has the right to sign a document on his/her behalf.
The existing shareholders have the primary right to buy the shares during the transfer on the basis of preemptive rights.
Process of Share-Transfer in Singapore
1. ‘Instrument of Transfer’
A transferor has to execute an ‘Instrument of Transfer’ with the transferee in order to formally start the process of share transfer. This document attests to the fact that a transferor and transferee have agreed to transfer and accept the shares.
A transferor has to write a request for share transfer to the board.
2. Transfer Request & Board’s Decision
The board has 30 days to either approve or deny the request for transfer.
A board’s decision along with the reason behind this decision is recorded in a board’s resolution.
The board sends a written ‘Notice of Refusal’ to the transferor and transferee if the transfer of share is denied.
3. Payment of Stamp duty during Transfer of Shares
The transferor (of share) and the transferee have to determine who is going to pay the ‘Stamp Duty’.
It has to be paid within 14 days after the execution of Instrument of Transfer.
The Instrument of Transfer may contain the information regarding the party who is responsible for the payment.
The Stamp Duty is payable to IRAS during the share transfer.
The Share Transfer Form also needs to be submitted to IRAS.
5. Surrender of Original Share Certificate
If the share-transfer has been approved by the board, then the transferor has to surrender the original Share Certificate (for cancellation or rectification) to a company.
It has to be performed within 7-28 days after making a request for the written share transfer.
6. Updating by ACRA & Issuing of New Share Certificate
The share-transfer will be effective once ACRA updates the electronic register of the company members.
A company can issue a new Share Certificate to the transferee within 30 days of registering the share-transfer with ACRA.
Removal of Directors in Private Company Singapore
The directors of a private company in Singapore hold key positions in the management of daily activities. However, a company may need to remove a director from the position under the following circumstances.
Breach of duties
Poor personal conduct
Involvement in any type of corporate scandal
Poor management resulting in subpar performance of a company
In a private company of Singapore, the shareholders can remove a director. However, this procedure has to be performed in accordance to a company’s constitution. According to Section 152(9) of CA, a company’s shareholders can remove the director by ordinary resolution in two scenarios.
More than 50% of the votes are in favour of removal.
There is no contrary provision in the constitution.
The shareholders need to give a written notice of 14 days to the director. However, it is possible to waive this requirement if the decision of removal is accepted by more than 95% of the votes.
An ordinary resolution will even be useful for the removal of a private company’s director in Singapore if a company has adopted the entire Model Constitution. The constitution of a private company may even specify additional conditions/requirements for the removal of director. For example, a special resolution may mention that more than 75% votes are required in order to remove a director.
A private company’s shareholders have to convene a general meeting in order to start the process. The shareholders have to vote in this meeting (in favour or against the removal) and have to pass a resolution. If there is a clause in a company’s constitution with regards to the removal of a director under special circumstances, then a director can be removed without requiring the votes of the shareholders.
Mr. Pankaj Kumar is a member of ICAI (Indian Institute of Chartered Accountants of India) since 2002. He has over 17 years of experience in cross border advisory, international taxation, structured finance, trade finance and management consulting. At IMC Group, he primarily manages Client Advisory, Relationship Management & Business Development amongst group strategies.
By Hari Babu
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