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Procedure for Transfer of Shares

Section 175 of the Companies and Allied Matters Act (CAMA) explains how shares can be transferred from one person to another in a company. The procedure is as follows.

Execution of a Contract of Transfer
The transferee and the transferor must execute a contract between them, stating basically that the transferee has transferred his shares in the company to the transferor. The CAMA refers to this as an “instrument of transfer”. The document will also state the consideration for the transfer. A simple instrument for share transfer is the “Share Transfer Form”. 

Stamp Duty on the Instrument of Transfer
After the execution of the document of transfer, either of the party, preferably the transferor would pay for and carry out stamp duty of the document. This process is a legal requirement, and so ought to be done for record and future purpose. However, the fact that stamp duty of the instrument of transfer wasn’t done does not invalidate the document. Meanwhile, some companies may also require stamp duty on the document before they can register the transfer in their records. 

Lodgement of Transfer
It is the duty of the transferor to inform the company of the transfer. He will make an application to the company requesting the registration of the transfer and the entry of the transferee’s name in the company’s register of members. If the company has no objection to the transfer and the instrument of transfer, the company will register the transfer in its register of transfers and enter the name of the transferee in its register of members. This process is referred to as ”lodgement of transfer”.
Until the transfer is lodged with the company, the transferor remains the owner of the shares in the company, irrespective of any transaction between the transferor and the transferee. 

Issue of Certificate 
A company is bound to issue a share certificate to the transferee within 3 months of the lodgement of the transfer (s. 171 CAMA). Unless there are other circumstances involved in the issue, the share certificate is free. The certificate is only a formal recognition of the transferee’s membership of the company. Whether or not it is issued doesn’t affect the membership or entitlement of the transferee to the shares. The transferee of the shares became a member of the company at the lodgement of the transfer. So, the fact that a person holds a share certificate of shares in a company is only prima facie evidence of his title to the shares (s. 172 CAMA). A share certificate must be traced to the membership register of the company. If the share certificate doesn’t have a backing in the register of members of the company, it is void.  

Can Transfer of Shares be filed with the CAC?
The answer is simply No. Transfer of shares is regarded as an internal affair of the company. Even if the transferor is one of the first subscribers and allottees of the company, the instrument of transfer and the subsequent share certificate issued to the transferee are sufficient evidence to the effect of transfer. However, the transfer can be reflected in the company’s next filing of annual returns with the Commission. 
 
In other words, the fact that a first subscriber or allottee transferred all his shares to a new member does not translate to the removal of the name of the allottee from the documents of incorporation of the company. This will only be reflected in later filings of the company. This process cannot be side-tracked by filing Form CAC 5 (Return of Allotment of Shares). This form is only relevant when new or old shares are allotted or reallotted and for notice of increase in share capital.

Can Old Shares be Reallotted?
The answer is Yes. The procedure is for the first subscriber / allottee to surrender his shares to the company or for the company to forfeit the shares of the subscriber for various reasons. Once the shares are surrendered or forfeited, then they can be reallotted to a new or old member. Form CAC 5 is relevant in this circumstance, and will be filed with the Corporate Affairs Commission.

Articles on this site are meant for general knowledge only, not as professional advice. If you need personal advice on matters contained herein, you are advised to contact a professional.

We are a firm of legal practitioners and CAC certified agents. We help business owners, entrepreneurs and associations register their businesses, companies and associations with ease. If you need our help with any of the matters contained in the article, feel free to send us a mail at niyiama@yahoo.com or reach us on WhatsApp @ +234-08126194751.

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