Transfer of shares in a company in Kenya
The transfer of shares enables shareholders to adjust their stakes in a company or exit entirely. Share transfers can occur due to various reasons, including business restructuring, personal decisions, or changes in strategic investments.
The transfer of shares in Kenya is primarily governed by the Companies Act, 2015, which outlines the rights and obligations of shareholders, directors, and companies. Additionally, the company’s Articles of Association and any shareholders’ agreements play a key role in regulating share transfers. These documents may impose restrictions, such as preemptive rights or board approval, which must be adhered to during the process.
Methods of Share Transfer
A shareholder can exit a company or change their stake through the following methods:
1. Transfer of Shares to Another Party
This is the most common method of share transfer. A shareholder may sell or transfer their shares to another existing shareholder or a third party. This method is governed by the company’s Articles of Association, which often specify procedures such as obtaining consent from the board or adhering to preemptive rights where existing shareholders have the first right to purchase the shares.
2. Forfeiture of Shares
Forfeiture of shares occurs when a shareholder fails to meet obligations, such as payment for shares. Under such circumstances, the company may resolve to forfeit the shares, effectively canceling the shareholder’s rights. The forfeited shares are then held by the company and may be reissued to other parties.
3. Buyback of Shares by the Company
In certain situations, a company may opt to buy back shares from its shareholders. This process is subject to strict legal and regulatory requirements under the Companies Act, 2015, to ensure fairness and protect creditors. The buyback must be authorized by the Articles of Association and approved through a shareholder resolution.
Procedure for Transferring Shares of a private company in Kenya
The process for transferring shares involves several steps to ensure compliance with legal and regulatory standards:
Step 1: Review of the Company’s Articles of Association
The Articles of Association often contain provisions that guide share transfers. Restrictions such as board approval, preemptive rights, or limitations on transfer to third parties must be considered.
Step 2: Execution of a Share Transfer Agreement
The shareholder transferring their shares and the buyer must execute a share transfer agreement. This document outlines the terms of the transfer, including the number of shares, purchase price, and payment terms.
Step 3: Preparation of Share Transfer Forms
A Form of Transfer of Shares, commonly referred to as the share transfer form or transfer deed, must be completed. This form captures essential details such as the particulars of the transferor, transferee, and the shares being transferred.
Step 4: Stamp Duty Payment
Under the Stamp Duty Act, share transfers are subject to stamp duty, typically calculated at 1% of the value of the shares being transferred. Payment must be made to the Kenya Revenue Authority (KRA), and the transfer documents must be stamped to signify compliance.
Step 5: Approval by the Company’s Board
The board of directors must approve the transfer of shares, ensuring compliance with the company’s Articles of Association and applicable laws. The approval is documented in board meeting minutes or a resolution.
Step 6: Update of the Company’s Register of Members
Once the transfer is approved, the company updates its register of members to reflect the new shareholder. The company must also issue a new share certificate to the transferee. A new CR12 will be issued.
Key Considerations in Share Transfers
- Preemptive Rights: Shareholders may have the first right to purchase shares being sold. These rights are typically enshrined in the Articles of Association or a shareholders’ agreement.
- Valuation of Shares: An independent valuation may be necessary to determine the fair market value of the shares, especially for closely held companies.
- Regulatory Compliance: For certain companies, particularly those in regulated sectors, prior approval from industry regulators may be required.
- Tax Implications: Share transfers may have tax implications for both the transferor and the transferee, requiring proper consultation with tax advisors.
