Company Law Notes for Company Law Notes

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Transfer of Share

  • The shares of a company are movable property and can be transferred in a manner prescribed by concerned law and articles of association of company.
  • The transferability of shares is one of the significant advantages of company form of organizations.
  • Section 42 of the Companies Act of Nepal specifically declares that the shares or debentures of a company may be sold or pledged like a movable property subject to this Act , MoA & AoA.
  • So, as a matter of fact, it is right of every shareholder to transfer his/ her share. However the manner of transfer may be prescribed by MoA, AoA and respective law.
  • The MoA & AoA of company can make some preconditions, but cannot absolutely restrict the right of member to transfer there share.
  • In absence of any restrictions, in the AoA , MoA & law the shareholder has an absolute right to transfer his/ her shares.
  • Share is a special type of movable property; it is not like gold, furniture and cash etc. Therefore, there are some special laws to regulate transfer procedure viz; the Companies Act 2006, The Securities Act, BAFI Act, NRB Act 2058 B. S. etc.
  • Transfer of share will be furnished only by fulfilling the prescribed procedures of such special laws.
  • There are so many ways of transfer of shares from one to another. The share transfer deed document and will paper are the means of voluntary transfer of shares. Non voluntary transfer court order i.e. order of distribution in partition case ( ansa mudda)
  • As per legal provision of section 42(1) of the Nepalese Companies Act “the shares or debenture of a company may be sold or pledged like a movable property subject to this Act, MoA & AoA.
  • As per section 42 (2) of this Act the promoter share of a company, other than a private company which has not borrowed loan from any other company, shall not be entitled to sell or pledge any share held by him until the 1st general meeting of company is held and a call on the share issued in his name is fully paid up.
  • Section 43 of the Companies Act states about the procedures of the transmission of shares or debentures of company. As per this section if any share or debenture is sold, the buyer thereof shall make an application to registered office of the company with a copy of deed and share or debenture certificate. In compulsory transmission there will be order of court. Than the company cross off the name of transferor and enter the name of transferee shareholder debenture holder in the register within 15 days after making of such application. But if any prevailing law on securities provides that no deed of transfer is required for transfer the title, such deed is not required to be produced along with the application to be so made.
  • The grounds to refusal have been mentioned in section 44 of the Companies Act. As per this legal provision in following circumstances company can refuse to record the transmission; A) If a call on share has not been paid up. B) If the transmission is contrary to the articles of association of company and the agreement concluded between the shareholders. The information regarding transmission will be provided to both transferor and transferee from the date of application.
  • Section 55 of Nepalese Companies Act states about the ownership of share or debenture. As per this legal provision, if a dispute arises about the ownership of any share or debenture issued by any company, the person whose name is registered in the share or debenture register of company shall, unless otherwise proved, be regarded as the owner of such share or debenture.
  • Section 45 of the Companies Act describes the other circumstances where the share or debenture may be transmitted by operation of law. Circumstances may be the death or insolvency.
  • Process of transfer; a) the shareholders should be registered in the Stock Broker’s Office at first. b) Joint application with deed of transfer with original share certificate.
  • Transfer in case of private company; a) Board decision, b) deed c) application d ) information providing for record to the CRO d) fulfilling the prescribed process of record by CRO.
  • Restriction on transfer ; by making provisions in AoA & consensus agreement in case of private company section 10 (d) 42(2) section 145(1) (b), if there is no entitlement, as per legal provision such as section 42(2) of Act.
  • The case of Lun Karan Das Chaudhary V. NRB( A collection of some important precedents of commercial case; part 4 S.No. 42 p. 290) . The transfer of share should not be restricted by making some conditions of contract.
  • There must be a valid authority or entitlement on share to transfer the share. A person who has no authority or entitlement, such shareholders cannot make a valid transfer of shares. Thus transfer of shares by the husband of a lady shareholder without her authority was held to be void and transferee got no rights by such transferred share.( John Tinson & Co. v. Surjeet Malhan , AIR 1997 SC 1411).

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