Transfer of Shares I
The Companies Act 2014 Act re-enacted the earlier provisions on the transfer and transmission of shares and debentures. An instrument of transfer must be executed, by or on behalf of the transferor. Where the consideration is not fully paid, it is to be executed by or on behalf of both transferor and transferee.
Under the Companies Act, a company may not take notice of any trusts or equitable interest. Accordingly, the register of members deals only with the legal interest in shares.
The person transferring shares must have the legal capacity to do so. He should be over the age of 18 years and be of sound mind.
The transfer of shares is usually undertaken by way of a transfer document in a format prescribed by legislation. It provides for insertion of the company details, particulars and numbers of the shares transferred, the price, the seller and buyer’s details.
Transfer of Shares II
The company secretary must not register a transfer of shares unless a proper instrument of transfer, duly executed and stamped is furnished to the company. The company secretary must ensure that the certificate shows payment of the stamp duty which applies. Stamp duty is currently payable at the rate of one per cent. of the price or other consideration paid.The old share certificate is required, although its production may be dispensed with if it is lost, usually on the basis of an indemnity.
The transferor remains the registered shareholder until the transferee’s name is entered on the register. Upon registration of the transfer, the register of members is written up and new share certificate is issued to the transferee. A new certificate may also issue to the transferor in respect of any shares which he retains.
Registration of transfers may be suspended for up to 30 days a year, as the directors may determine.
Refusal to Register Transfer
The default position which applies private limited companies and designated activity companies is that the directors may in their absolute discretion decline to register a share transfer without giving a reason. The refusal to register must take place within two months of the date of delivery of the instrument of transfer.
Save where the constitution of the company otherwise provides, the board of directors may at its discretion and without assigning any reason for so doing, decline to register the transfer of any shares. The directors’ power to decline to register a transfer of shares ceases to be exercisable on the expiry of two months from the date of delivery of the copy of the instrument of transfer of the shares.
The directors may also refuse to register a transfer instrument unless the following are produced
- a fee of €10 or such lesser sum as the directors may specify is paid;
- a certificate for the shares or other evidence as the directors may reasonably require in order to prove the right of the transferor to make the transfer; and
- the instrument of transfer is in respect of one class of share only.
If the directors refuse to register a transfer, they shall, within two months after the date on which the transfer was lodged, send notice of the refusal to the transferee.
Refusal of Registration
The directors are obliged to refuse the registration of a transfer within a reasonable time if they wish to exercise the power to refuse registration. The default provisions effectively require this to be done within two months. If the directors refuse to register, they must notify the transferee of their refusal within this period.
The courts will not interfere with the exercise of the directors’ discretion, provided that they act in good faith for the benefit of the company. The courts have found in some cases, that in the circumstances, the directors have acted in bad faith.
The status and qualities of the transferee may be relevant. Where the transferee is an existing shareholder, the refusal is more likely to be invalid. It may be legitimate for the company to maintain its status, for example, as a family company under close control.
The particular constitution/ articles may limit the grounds on which the registration of transfers may be approved. The directors may be obliged by the constitution/ articles to give reasons for the refusal to register.
Status of Transferee on Refusal
It is a question of the interpretation of the terms of the sale contract between transferor or a transferee as to what is required in terms of registration of the buyer/ transferee. The sale should be made conditional on the approval of the transfer. There may be an express or implied term obliging one or other party to achieve a particular result. In this case, the seller may be in breach of contract if there is a refusal
Notwithstanding that the directors may have the right to refuse the registration of a transfer of shares, it is usually the case that this limits only the transfer of the legal interest in the shares. Where a transfer is made by an existing shareholder to a third party for value who is refused registration, then by basic principles of equity, the transferor is obliged to hold his rights and interests in trust for the transferee.
The transferor remains registered as the owner of the shares on the register of members. The company may deal with him for all purposes as a member. However, the registered owner is obliged to deal with the shares for the benefit of the transferee. He must vote at the direction of and account to the transferee for dividends and distributions.
The constitution, articles or a shareholders’ agreement, may go further in seeking to prohibit all transfers of both the legal and the beneficial interest in the shares. In this case, no transfer may be possible at all. The position is ultimately determined by the interpretation of the relevant provisions.
Transfer on Death I
On the death of a member, the survivors or survivor where the deceased was a joint holder, and the personal representative of the deceased where he was the sole holder, shall be the only persons recognised by the company as having title to deal with the shares.
The company may register a person who succeeds the registered owner of shares or debentures by operation of law. A transfer of shares of a deceased member made by his personal representative has the same effect as a transfer made by the deceased member.
Upon the death of a shareholder, the personal representatives must distribute the shares (along with the deceased’s other assets) in accordance with the entitlements determined by the deceased’s will, or if there is none, in accordance with the intestacy rules. The personal representative or beneficiary may or may not be entitled to be registered as owner by the terms of the constitution.
Transfer on Death II
The default provisions/ articles of association allow the directors to deal with the personal representative exclusively. They may require the may allow the personal representative to apply to be registered or to have his nominee registered. They retain the discretion to refuse a registration of the personal representative or his nominee under the default provisions.
Shareholders’ Agreements or bespoke articles may make provision for succession on death. There may be a right of pre-emption (first refusal) for other shareholders, which may be financed in some cases, by a life assurance policy. There may be a right for beneficiaries to become registered if their shares are not purchased out.
Regulations may be made by the Minister to prescribe procedures by which registration of shares may be undertaken in cases of the death of the sole shareholder or director. They may which deal with possible difficulties that might otherwise arise.
Registration on Death I
Any person who becomes entitled to a share in consequence of the death or bankruptcy of the holder, may upon evidence being produced as may be required by the directors, elect to have himself registered or some other person as is nominated and who consents to be so registered, as the transferee thereof.
The directors have the same rights to decline or suspend registration as they would have had, in the case of a transfer of the shares by the member before death. Any limitations and restrictions relating to the right to transfer and the registration of a transfer are applicable as if the death or bankruptcy of the member concerned had not occurred and the notice of transfer was a transfer by that member.
Subject to the above provisions, a person who becomes entitled to a share by reason of death or bankruptcy, shall be entitled to the same dividends and other advantages which he would have been entitled to if he were the registered holder of the shares. Such a person shall not, before being registered as a member, be entitled to exercise any right conferred by membership in relation to shareholders’ meetings.
Registration on Death II
The directors may at any time serve a notice on such person requiring him to elect to register himself, (e.g. a personal representative) or another (e.g. a beneficiary) within 90 days of service. They may withhold dividends or bonuses in respect of the shares until the requirements have been complied with.
The company may charge a fee not exceeding €10 on the registration of every grant of probate, letters of administration, certificate of death, power of attorney, notice as to stock or other similar instrument or order. The production of a copy of the document which is sufficient evidence thereof by law, (e.g. original court certified copy) must be accepted by the company, as sufficient evidence thereof.
The directors may require the personal representative to take the shares himself or register a transfer of the shares within 90 days. A personal representative may not be registered as a member without his consent. The default provisions / standard articles nonetheless retain the directors’ right of refusal to register a transfer on death. The directors may refuse registration of a transferee or nominee.
On bankruptcy, the shares vest in the Official Assignee. If the shares are onerous, in the sense that they carry unlimited liability or carry an obligation to pay calls, they may be disclaimed by the Official Assignee within 12 months, with the consent of the court.
Mortgage / Charge
A legal mortgage of shares involves the transfer of the title to the mortgagee. An equitable mortgage generally involves the execution of a transfer in blank together with a power of attorney and charge document. A practical difficulty is that the directors may refuse to register the incoming nominee. In some cases, a waiver/ consent may be given in advance.
A mortgagee may protect his position by serving a stop notice on the company. This is provided for under the Rules of the Superior Courts. A notice and affidavit are filed in the High Court Central Office and a duplicate is served on the company at its registered office. Thereafter the company may not permit the specified shares to be transferred or pay dividends. The company must notify the person named on receiving a request to transfer and wait eight days before it registers.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.9 Courtney
Keane on Company Law 5th Ed. (2016) Ch.18 Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Palmer’s Company Law