Share Transfer And Share Allotment - What's The Difference?

Share Transfer And Share Allotment - What's The Difference?

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If you regularly follow the latest business news, you would have undoubtedly come across the terms share transfer and share allotment. These are often mentioned without explaining what the differences between them are. Allow Sprout Asia to walk you through exactly what the two terms mean and when to use one or the other.

What Are the Main Differences Between Share Transfer and Share Allotment?

The single biggest difference between share transfer and share allotment is that when shares are allotted, the company actually issues brand new shares, which are then distributed to the shareholders. This is more common when a new company is being established but additional shares can also be issued (allotted) at a later stage. No stamp duty applies when shares are allotted.

The term share transfer, on the other hand, refers to when existing shares are transferred to a new owner. This always happens after the company has already been established and the initial shares have been allotted. In this regard, it is important to note that stamp duty has to be paid by the buyer(s) of these shares.

Next, we individually discuss the terms share transfer and share allotment.

What Do You Need to Know About Shares Allotment In Singapore?

Depending on the firm’s constitution, it may allow the directors to choose the number of new shares they want to issue, the prices of these shares, and the terms that apply. However, all of these are still subject to the requirements of Section 161 of the Companies Act.

Regardless of the requirements of the company’s constitution, the company directors must first confirm the decision to issue shares, which must be approved by a general meeting before they can proceed.

Shares are typically issued for cash or ownership/decision-making purposes but can also be allotted for the following reasons:

  • As a substitute for paying dividends to a shareholder or group of shareholders
  • When this is provided for in the company’s constitution
  • Based on a contract that can be either verbal or written

Transferring Shares In Singapore

The shareholders of a firm can decide to transfer or sell their shares whenever they so wish. The main condition is that this has to take place according to the company’s constitution. The share transfer must also be filed on ACRA and stamp duty should be paid to IRAS.

Apart from that, the procedures followed must be compliant with the requirements of the regulating authority.

How Does a Share Transfer Agreement Take Place?

The company directors will typically have a general meeting where they decide on a share transfer. The relevant share transfer form has to be completed by both the seller (transferor) and the buyer (transferee). The company secretary can assist with this.  

In case of the transfer of shares in a private company, the electronic members’ register also has to be updated. In Singapore, these tasks might be best handled by an experienced corporate secretary.

Why Do Shareholders Choose to Transfer Shares?

There can be numerous reasons for a decision to transfer shares. Shareholders who have a minority shareholding in a company might, for example, decide to sell their shares to get access to cash instead.  

Individuals who received their shares in the company as part of a worker share scheme might decide to sell when they want to move on to a new employer. Simliarly, the founder of a company might also decide to convert his or her shares to cash when the day arrives that they want to exit the business completely.

What Are the Rights of Shareholders in Singapore?

Shareholders of a company are able to decide when they want to bring a new business partner into the firm and take part in the share transfer agreement  for him or her to buy a certain number of existing shares. In some cases, shareholders can also decide to transfer some of their shares to a family member or spouse as a gift. The latter is a good example of an internal transfer of shares.

Share transfers are less complicated since they only involve the directors and the transferor and transferee, whereas, share allotment also involves the other members. The disadvantage of distributing new shares is that it may dilute existing shareholders percentage of shareholding in the company. This can influence the decision-making process during general business meetings and therefore, reflect differently on the company’s business decisions.

So, what is the gist behind what we have learned about the differences between share transfer and share allotment in this article?

The Bottom Line When it Comes to Share Transfer and Share Allotment

The main difference between share transfer and share allotment is whether the aim is to issue new shares or transfer shares that have already been issued. This is because of the legal requirements involved, and it is generally speaking better to get the help of an experienced professional to ensure you are being compliant with regulations.

When in Doubt, Reach Out!

Sprout Asia offers professional corporate secretarial services to ensure a seamless share allotment and transferral process. Feel free to contact us for a complimentary consultation to discuss the specifics of your business, we will respond within 24 hours.