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Share Transfer shall in no way be taken synonymously as the transmission of shares, the two terminologies are quite different from each other and refer to two separate processes of changing the ownership of shares in the company.
Difference between Share Transfer and Transmission of Share
It is the process of transferring ownership of shares by mutual agreement between the parties, where it involves the sale agreement, transfer instrument, and payment of Capital Gain Tax, and it should be permissible under the articles of association of the company.
Transmission of share
It is the process of transferring the ownership of shares by operation of the law, only in case the member passes away or becomes insolvent/lunatic.
Share Transfer Procedure in Tanzania
The shares or other interests of any member in a company shall be movable property, transferable in the manner provided by the articles of association of the company. The article of association must allow the transfer of shares from one person to another and it shall provide for the procedure to adhere to during the transfer process. The most common procedure is as follows;
Notice to directors of the company.
Generally, most private companies’ articles of association forbid the transfer of shares to a non-member of the company. As such the existing members shall be offered the shares and if none of them is interested in
buying them, then they can be offered to the outsider, with the consent of the directors of the company.
Hence the seller/shareholder shall give notice to the directors of his intention to sell his shares to the members and the director must notify the members of the same. If any of the existing members are interested in buying, then they will go on to negotiate and reach an agreement with the seller. If none of the members are interested in buying the shares, then the same will be offered to outsiders with the consent of the directors.
Resolution to transfer the shares.
Whether the shares have been offered to the existing members or outsiders, the members of the company must resolve and agree on the said transfer of shares. This can be done through extra-ordinary meeting of the company, where the members will be notified of the intention of the shareholder(s) to sell the shares, and if agreed it must be resolved as such.
Sale Contract and Share Transfer instrument
Once the members of the company have resolved that the shares can be transferred, then the shareholder/the seller and the purchaser shall proceed to execute the sale contract, to save as evidence that the shares have been transferred.
In addition to the sale contract, the seller and the purchaser must also execute the Share Transfer Instrument, which signifies that the transferor/seller has transferred his shares to the transferee, the transferee has accepted such transfer, and that the company has consented to and approve the said transfer of shares.
The share transfer instrument is so important that the share transfer process will be regarded as incomplete if the instrument is not executed by either party.
Payment of Capital Gain Tax and Stamp Duty.
Generally, the transfer of property is charged CGT and SDT by the government, and the tax is charged to the person who has earned monetary value from the transfer of property, in this case, the Seller/Transferor, however, the parties are not prohibited to make personal arrangement on who will cover the said CGT.
In Tanzania, the CGT and SDT are charged at 10% and 1%, of the value of the contract respectively. Or the estimated value assessed by the taxing officer depending on the value of the share at the current market, whichever is greater.
The taxes are paid to the Tanzania Revenue Authority, through the control number issued by the authority. After paying the CGT and SDT, the authority issues the tax clearance certificate to acknowledge full payment of the required amount of taxes, by the transferor/seller.
Notification to the registrar of companies about Share Transfer.
Once the transfer has been completed, and the taxes are paid the next step is to notify the company registrar (BRELA) about the transfer of shares, so that the Registrar can update the company information in the registry records, accordingly.
The company has the duty under the law to give notice to the registrar on every change made to the company and share transfer is one of them. In addition to the above notification, the said changes also have to be shown in the company annual return of the company to be filed with the company registrar (BRELA).
Surrender & Issuance of Share Certificate.
A share certificate is issued to the shareholder who has fully paid for his/her shares and it saves as evidence that he is the owner of the fully paid-up shares indicated under the certificate. The share certificate is issued to the shareholders only if the company’s Article of Association has provided for the same.
If the company had issued share certificates to its shareholders, then upon the completion share transfer, the holder of the share certificate at the time of transfer i.e. the seller, has to surrender the certificate to the company as he will immediately cease to be a member once the share transfer is done.
Furthermore, upon surrender of the share certificate and completion of the share transfer the company has to issue a new share certificate to the new shareholder acknowledging the transfer of shares and recognize the purchaser as one of its members/shareholders.
At Eden Law Chambers, we assist Clients in smoothly transferring/acquiring shares in a company by making sure that all the required procedures are adhered to, preparing required documents, and submitting the same to the relevant authorities.
This article is intended to give you a general overview of the Transfer of Shares in a Private Limited Company in Tanzania, it should not be taken as legal advise/opinion. If you would like further information and clarification on any issue raised in this article, please contact;