Transmission of Shares of a Hong Kong Company
Transmission of shares refers to the transfer of shares to a person by operation of law, for example, in the case of the death or bankruptcy of the existing registered member. Upon the death or bankruptcy of the existing member, the interest of shares shall vest in the personal representative and the trustee in bankruptcy respectively.
Table A to the Hong Kong Companies Ordinance provides that in case of the death of a member, the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognized by the company as having any title to his interest in the shares.
1. Difference Between Transfer and Transmission of Shares
The terms transfer and transmission of shares is frequently juxtaposed by the people and hence used synonymously. Although, the terms vary in their meaning and concept as well. Transfer of shares is a voluntary act of a member but Transmission of shares occurs due to the operation of law i.e. in case if the member passes away or becomes insolvent.
2. Definition of Transfer of Shares
Transfer of shares refers to the intentional transfer of title (rights as well as duties) to shares by one person to another. There are two parties to transfer of shares, i.e. transferor and transferee.
The shares of the public company are freely transferable unless there is an express restriction provided in the articles of association. However, the company can refuse the transfer of shares, if it has a valid reason for the same. In case of a private company, there is a restriction on the transfer of shares subject to certain exceptions.
3. Definition of Transmission of Shares
There are certain instances when the transfer of shares occurs due to the operation of law, i.e. when the registered shareholder is no more, or when he is insolvent or lunatic.
Transmission of shares also occurs when the shares are held by a company and it is wound up.
The shares are transferred to the legal representative of the deceased and the official assignee of the insolvent. The transmission is recorded by the company, when the transferee gives the proof of entitlement of shares.
4. Key Differences Between Transfer and Transmission of Shares
The important differences between transfer and transmission of shares are provided below:
(1) When the shares are transferred by one party to another party, voluntarily, it is known as transfer of shares. When the transfer of shares happens due to operation of law, it is known as transmission of shares.
(2) Transfer of shares is done intentionally whereas death, bankruptcy and lunacy are the reasons for transmission of shares.
(3) The transfer of shares is initiated by the parties to transfer, i.e. transferor and transferee. Unlike transmission of shares which is initiated by the legal representative of the concerned member.
(4) Transferee pays an adequate consideration to the transferor for the transfer of shares. In case of transmission of shares, no consideration shall be paid.
(5) Execution of valid transfer deed is necessary when there is the transfer of shares, but not in transmission of shares.
(6) When the transfer is completed, the liability of the transferor is over. On the other hand, the original liability of shares exists.
(7) Stamp duty is payable on the market value of shares in case of transfer while in transmission of shares no stamp duty is to be paid.
5. Provisions of the Companies Ordinance
Table A to the Companies Ordinance provides that in case of the death of a member, the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognized by the company as having any title to his interest in the shares.
Regulation 65 of Model Article for private companies limited by shares (schedule 2 of the Companies (Model Articles) Notice) provides if a member dies, the company may only recognize the following person or persons as having any title to a share of the deceased member:
(1) if the deceased member was a joint holder of the share, the surviving holder or holders of the share; and
(2) if the deceased member was a sole holder of the share, the legal personal representative of the deceased member.
The personal representative has to produce evidence to such company for registration. 35 The CO provides that, notwithstanding anything contained in its articles of association, the production of probate of the will, or letters of administration of the estate of a deceased person, by the personal representative, will be sufficient evidence. 36 Section 161 of the New Companies Ordinance reinstates this position under the CO.
The articles of association of a company provide for the mechanism for transmission of shares as in the case of regulations 31 to 33 in Table A to the CO and Regulations 67 and 68 of Model Article for private companies limited by shares (schedule 2 of the Companies (Model Articles) Notice).
The CO further provides that a transfer of the share or other interest of a deceased member of a company made by his personal representative shall, although the personal representative is not himself a member of the company, be as valid as if he has been such a member at the time of the execution of the instrument of transfer. Section 153 of the New Companies Ordinance reinstates this position under the CO.
If a company refuses to register any person as a member in respect of shares which have been transmitted to him by operation of law, that person shall be entitled to call on the company to furnish a statement of the reasons for the refusal, and, if the company fails to furnish such statement within a period of 28 days after the request, the company shall, on the expiration of that period, register the transfer forthwith. Section 158 of the New Companies Ordinance reinstates this position under the CO.
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