Transfer of shares is a common activity in enterprises (joint stock companies). Shareholders transfer shares to each other under the law to help enterprises raise capital and improve financial capability according to the company’s business situation. However, because this is an activity related to the interests of both parties, the transferring shareholder and the transferee shareholder, many disputes surrounding the issue of share transfer occur in reality. With our experience, in this article, TNTP’s lawyers will analyze more clearly the transfer of shares and related issues that enterprises need to pay attention to limit conflicts and disputes between shareholders when transferring shares.
1. What is the transfer of shares?
• The law does not specifically stipulate the definition of “Transfer of share”, but based on the provisions of the Enterprise Law and related legal documents, we can understand that:
Transfer of share is an act where the transferring shareholder sells/gives away their shares to the transferee shareholder or the company repurchases the transferring shareholder’s shares. The transfer of shares will change the number of shares that each shareholder holds through buying, selling, giving away, inheriting, etc.
Shareholders are free to transfer but must comply with the provisions of law and the provisions of the Charter.
• Common cases of transfer of shares:
Transfer of ordinary shares:
Ordinary shares are shares that must be held in a joint stock company. Transfer of ordinary shares is a transaction between:
(i) The transferring shareholder will sell part or all of their shares to the transferee party (which can be an individual, a legal entity outside the company, or another shareholder of the same company); or
(ii) A person buys shares of an enterprise when the enterprise offers shares for sale.
Transfer of preference shares:
Preference shares have not been specifically defined by law, but it can be understood that joint stock companies can have preference shares in addition to ordinary shares. Preference shareholders will receive certain preferences corresponding to the type of preference shares they hold from the enterprise’s business profits.
According to the provisions of law, there are 04 types of preference shares including:
– Participating preference shares;
– Redeemable preference shares;
– Voting preference shares; and
– Other types of preference shares prescribed by the company’s charter and securities laws.
Transfer conditions for types of preference shares will depend on each type of share. Some preference shares can be transferred on a discretionary basis or as prescribed by the company’s charter. But with some preference shares, the transfer is not decided by the shareholders or the charter, but by a legally effective Court’s decision or inheritance (for voting preference shares).
Transfer of shares in special cases:
– Shareholders who are individuals die:
According to the provisions of Clauses 3 and 4, Article 127 of the Law on Enterprises 2020, In case of the death of a shareholder that is an individual, his/her heir at law or designated by a will shall become a shareholder of the company. In the event a shareholder that is an individual dies without an heir or the heir refuses the inheritance or is disinherited, his/her shares shall be settled in accordance with civil laws.
– Shareholders give away shares or use shares to pay debt:
The giveaway of shares is based on the will of the shareholder who owns the shares and there is no need for an agreement between the giveaway party and the recipient.
Using shares to pay debt is transferring ownership of the shares a shareholder holds to the creditor and this requires an agreement between the two parties.
Individuals and organizations that are given away or receive debt payments in the form of shares will become shareholders of the company.
2. Things to pay attention to to limit disputes from transfer of shares
Before deciding to transfer (receive) shares, shareholders must clearly understand all issues relating to the transfer of shares because disputes often arise due to subjectivity and lack of understanding of the law. Thus, shareholders need to pay attention to the following:
• The transferor must be the owner of the shares and have their name on the shareholder register.
• The transferred shares are fully paid and the share buyer becomes a shareholder of the company when the buyer’s information is fully and correctly recorded in the shareholder register according to the law.
• The transfer of shares is subject to personal income tax and other related fees and taxes that have not been accurately calculated, which can cause financial loss or legal risks.
Above is an article by TNTP’s lawyer on the topic: “What should you pay attention to when transferring shares to limit disputes?” Hopefully, this article brings value to readers.
Sincerely,
