Last Updated on Friday, 30 September, 2022 at 3:12 pm by Andre Camilleri
Sarah Grima is a Senior Associate within the Commercial and Corporate Department of Fenech & Fenech Advocates
These FAQs consider the procedure and requirements in terms of Maltese company law concerning the transfer of shares in a company incorporated under the Companies Act
How is a transfer of shares regulated under Maltese law?
The procedure by which shares in a Maltese company can be transferred is effectively governed by the Companies Act (Chapter 386 of the Laws of Malta), which lays out the general legal requirements for the validity of a share transfer in terms of Maltese company law, and the Memorandum and Articles of Association (the “M&As”) of a company, which regulate the more specific and practical company procedures to be followed in order to affect a transfer of shares therein.
How is a transfer of shares validly constituted?
For a transfer of shares to be valid under Maltese law, it must be constituted by virtue of an instrument of transfer. The instrument of transfer is effectively an agreement in writing entered into by and between the transferor (the existing shareholder) and the transferee (the person to whom the shares are being transferred), regulating the transfer of the shares by the transferor in favour of the transferee.
The instrument of transfer (or an authentic copy of same) must then be delivered to the company in which the shares are being transferred, which company must accordingly record the share transfer in its register of members.
It is relevant to note that for the purposes of the Companies Act, the transferor shall be deemed to remain a holder of the shares until such time as the name of the transferee is entered in the register of members, and therefore, the updating of the register of members is essential for a person to be recognised as a shareholder in terms of Maltese company law.
Moreover, in the event that the transfer of shares brings about a change in the beneficial ownership of the company, such change must also be recorded in the company’s register of beneficial owners.
Within two months after the date on which a transfer of shares is registered with the company, the company shall also deliver the certificates of the shares transferred to the person/s entitled thereto (unless the conditions of issue of the shares otherwise provide).
What documentation is required to be submitted to the Malta Business Registry (the “MBR”) for the purposes of a share transfer?
- Statutory Form T (notice of transfer of shares);
- Statutory Form BO (2) (notice of change of beneficial ownership); and
- Supporting due diligence documentation pertaining to the new shareholder (in the event that the shares are not transferred to an existing shareholder), which varies according to the type and nationality of the new shareholder.
It is relevant to note that prior to MBR submission, the above-listed documents, together with any and all applicable tax documentation, will be required to be submitted to the International Corporate and Tax Unit as a first step.
Are there any restrictions on a transfer of shares?
While the right to transfer shares is a basicright of any shareholder, the M&As may, and in certain cases must, restrict to some extent, the right to transfer shares. More specifically, the Companies Act provides that for a company to qualify as a private company, the M&As must effectively contain some form of restrictions.
On the other hand, the law is silent with respect to the transfer of shares in public companies and it is therefore up to the shareholders of such companies to determine whether or not to include any transfer restrictions in the M&As.
One of the most common clauses restricting the transferability of shares is what is known as the “pre-emption clause”, which imposes an obligation upon any member wishing to transfer his shares, to first offer his shares to the other members of the company at a price determined in accordance with the M&As, before seeking to offer such shares to a buyer of his choice.
Other such restrictions may be included in the form of drag-along and/or tag-along provisions, the respective purpose of which is to protect the minority and the majority shareholder. By virtue of tag-along provisions, the majority shareholder is obliged to include the minority shareholder in negotiations for the sale of the company’s shares, entitling the minority shareholder to “tag along” in the transaction and thereby also sell its shares in the company upon the proposed sale of the majority shareholder’s shares. On the other hand, drag-along provisions entitle the majority shareholder to “drag” a minority shareholder into the sale of the company upon the proposed sale of the majority shareholder’s shares, thereby obliging the minority shareholder to also sell its shares in such instance.
Any such M&As clauses which, in some way, restrict the right to transfer of shares should effectively set out the procedure to be followed for the transfer of the shares in question to be validly affected.
Can a company refuse to register a transfer of shares?
As a general rule, a company has a right to refuse to register a transfer of shares and, in such case, it has two months after the date on which the transfer was lodged to send a notice of refusal to the transferee.
The only exception is with respect to a transfer of shares in a public company that is the result of a judicial sale. In such case, the transfer of shares cannot be refused and this notwithstanding the regulations contained in the Model Articles of Association found in Part I of the First Schedule of the Companies Act, or anything contained in the M&As of any such public company.