Proper documentation must be prepared so that the legal formalities for a share sale are adhered to. This ensures an effective transfer of title to shares.
Sale of shares can only be performed by businesses operating under a company structure. The process for the transfer of shares is set out in the company constitution. This article explains the typical documents required for a share sale.
Share Sale Contract
A share sale contract is a legal document detailing the terms of the sale. This includes:
- rights and obligations of the parties to the transaction pre-, during, and post-completion;
- share sale price and number of shares to be sold;
- when the title, property and risk transfer from the seller to the purchaser;
- a confidentiality clause; and
- warranties and indemnities
Transfer Form
The seller and purchaser must sign a share transfer form to formally transfer ownership of the shares. The current online form to use is Form 484. This form must be lodged with the Australian Securities and Investments Commission (ASIC) within 28 days of the share transfer date.
This form sets out:
- the shares to be transferred;
- the amount the purchaser paid for the shares; and
- whether the purchaser will hold the shares for itself or on trust.
Board Resolution
For a share sale to be effective, the board of directors of the company needs to approve the transfer. This can be done by way of a formal board resolution passed at a director’s meeting. Alternatively, a circular resolution may be passed, which is signed by the directors signifying that they are in favour of the share transfer.
Consent of Shareholders
Shareholders often have a ‘pre-emption right’. This means that a shareholder who wishes to sell their shares must first offer them to existing shareholders reflecting their shareholding proportion of the company before selling them either to one existing shareholder or to a third party. If this is the case, all shareholders must consent in writing to forego their pre-emption rights before the share sale is effective.
Alternatively, depending on the terms of the shareholders’ agreement, the shareholders may be able to pass a unanimous vote or special resolution approving the share sale free from pre-emption.
Share Certificate
A share certificate proves ownership of the shares. It outlines the updated allocation of shares to each shareholder.
Capital Gains Tax (CGT)
CGT is applicable to profits gained from the sale of shares. The amount of tax payable depends on a few matters. For instance, if the seller has owned the shares for less than 12 months, there will be eligibility for the CGT discount of 50%.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
