Shares Transfer

Key Takeaways 

• Shares transfer refers to the sale of a company’s shares to an existing or new shareholder.
• In Hong Kong, share transfer requires submitting forms such as the Instrument of Transfer, Sold Note, and Bought Note.
• A share purchase agreement is optional but helps protect both parties.
• After a stock transfer, the company must update its register of members and issue share certificates within 2 months.

As your business grows and evolves, it is highly likely that you would want to bring in new shareholders, or simply to change shareholding percentages amongst current owners. This may be achieved through a process known as share transfer, where shares in a company are sold to an existing or new shareholder. 

If you are currently considering a share transfer, you should check whether you’re bound by any restrictions. We will highlight how you can check for these restrictions before we walk you through the process.

Shares transfer: How to know if you’re restricted from transferring shares?

• Study your company’s Articles of Association (AoA): As the AoA is a collection of rules that your company must abide by, it also includes clauses on share transfers. Check whether your company’s Articles imposes any limitations or preconditions on share transfers, as any action that contravenes the AoA will be null and void.  

• Check shareholders agreements: If you are one among other shareholders in your company, chances are you’ve signed a shareholder agreement with them. Shareholder agreements can often contain clauses that restrict share transfers, among them being clauses on pre-emptive rights, which give existing shareholders an opportunity to acquire the shares before they are offered to a third party.

If the company refuses a share / stock transfer, what happens next?

Section 151 of the Companies Ordinance states that, if the board of directors refuses a transfer of stocks, then the board must send a notice of refusal to the buyer and seller of the shares, and it must do so within 2 months of the share transfer’s lodgement. 

If the buyer and seller request a statement that explains the reasons for the refusal, then the company will be obligated to provide that statement within 28 days. If the company does not comply, then it will incur a fine of HK$25,000, and an additional HK$700 fine for each day the offense persists. 

How to transfer shares to another person?

Now that you’ve checked for restrictions, you may proceed with the share transfer. 

1. Secure the company’s approval 

• Your company’s AoA specifies what kinds of approval is required for share transfers. 
• Usually, this is a board resolution passed at a board meeting or an ordinary resolution passed at a general meeting. 
• Once the resolution has been passed and signed, keep a record of it. 

2. Prepare, sign and file the transfer of stock ownership forms

Your company secretary will request a passport copy and a residential address proof from the new shareholder. Upon obtaining those documents, your company secretary will prepare the following share transfer documents. After the buyer and the seller sign the transfer documents, the company secretary will file them at the IRD.  

1. Letters to the Inland Revenue Department (IRD)
2. Instrument of Transfer
3. Sold Note and Bought Note, stating the seller, buyer, number of shares, and sale price.
4. Written Resolution signed by directors to approve the share transfer
5. Management account: This includes the general ledger, balance sheet, and profit and loss report 
6. The company’s Articles of Association

3. Stamp Duty

After the filing, the IRD will stamp the documents and complete the transfer within 1 – 2 working day. However, note that there will be a stamp duty involved. A sold note and bought note is subject to a stamp duty of 0.2%, either of the purchase price (the consideration), or the shares’ net asset value, depending on which is higher. Each Instrument of Transfer is also subject to a fixed stamp duty of HKD 5.00. While each party can bear half the duty, the buyer conventionally pays the full amount.

Issuing share certificates

According to the Companies Ordinance (Div. 2), a company must issue a share certificate to the buyer of the shares within 2 months of filing the share transfer documents. As the certificate is proof of share ownership, it should contain details of the issuing company, identification details of the shareholder, and the total number of shares they hold.

Updating company records after the share transfer

Your company secretary will update your company’s register of members within 2 months of the transfer. And, if the sold shares make up at least 25% of the company’s total shares, the company’s Significant Controller Register, which lists out the identities of the company’s ultimate beneficial owners, might also have to be updated.

Is a share purchase agreement necessary?

A share purchase agreement (SPA) is a legally binding contract between a buyer and a seller of company shares, outlining the terms and conditions of the sale. This contract puts down in black and white everything from the number of shares being sold, the price of the shares, and the conditions that both parties must meet for the deal to close. 

This document protects the interests of both the shares’ buyer and the seller, and sets out clear protocols for the completion of the transaction. This is why it would be a good idea to have a Share Purchase Agreement before you transfer shares, even though you’re not legally required to have this document on hand. 

When shares change hands, it affects the rights and the powers of all other shareholders, yours included. As a share transfer is not without its risks, feel free to reach out to Get Started HK for professional guidance. 

Frequently Asked Questions