HANDOUT # 11

TRANSFER OF SHARES

1- Preliminary Note

According to the provisions of the Companies Act 2017 ,

the shares of a member in a company shall be movable property
capable of being transferred in the manner provided by the articles
of the company.

“The main object of the companies is that the shares should be

capable of being easily transferred.”

BAHIA VS. FRANCISCO RLY. CO. (1868)

Part V, sections 76-81

2- Meaning and definition of a share

“The capital of a company is divided into units of different

denominations. Each such unit is called a share.”

“Share means share in the share capital of a company.”

SECTION 2(1)(35)

3- Members’ right to transfer shares ---

“A share holder has a prima facie right to transfer shares”

BEDE STEAM SHIPPING CO’S CASE (1917)

4- Procedure for transfer of shares –

a. Transfer deed

i. Application for Registration –

 ii. Duly stamped and Executed –

“Proper instrument duly stamped and executed by the

transferor and the transferee has to be made---When such
instrument is delivered to the company along with the scripts,
the shareholding of company is said to be legally transferred.”

SIDDIQUE MUHAMMAD MALIK VS. IMMAD

IFTIKHAR MALIK
2000 CLC 477

iii. In case of Destruction of Instrument –

b. Obligation of Transferee

i. Pay the purchase price

ii. Indemnify the transferor

c. Obligation of transferor

i. Proper instrument of transfer and share certificate

ii. Warrants the share certificate cover share being transferable

iii. Registration

d. Transfer procedure –
i. Proper form of transfer

ii. Name of the company

iii. Name and address of the transferor and transferee

iv. Distinctive numbers of shares

v. Date

vi. Stamp

e. Splitting of share certificate

f. Scrutiny of transfer

g. Receipt to person logging

h. Notice of lodgment to transferor

 i. Register of transfer –

j. Directors’ power to refuse transfer

i. Defect or invalidity of transfer deed

ii. Suspension of registration

iii. Non-payment of fee

iv. Not in the interest of company

k. Notice of refusal to transferee –

l. Liability in case of default –

5- Transfer to successor-in-interest –

6- Transfer to nominee of a deceased member –

7- Transfer by nominee or legal representative –

8- Conclusion

Transfer of Shares under the Companies Act, 2017 (Pakistan)

1. Preliminary Note

The Companies Act, 2017 of Pakistan, in line with modern corporate principles, recognizes that
shares are movable property and must be freely transferable, subject to the company’s articles
of association. This reflects the fundamental objective of a corporate structure: liquidity and the
easy transferability of ownership interests.

“The main object of the companies is that the shares should be capable of being easily
transferred.”
— Bahia v. Francisco Rly. Co. (1868)

Part V, Sections 76 to
81 of the Companies
Act, 2017, outline the
statutory framework
and procedures for the
transfer of shares.
These provisions
emphasize
transparency,
documentation, and the
rights of both
transferors and
transferees.

2. Meaning and Definition of a Share

A share represents a unit of ownership in a company’s capital. It defines a shareholder’s rights

and obligations.

“The capital of a company is divided into units of different denominations. Each such unit is
called a share.”

Section 2(1)(35) of the Companies Act, 2017 defines a share as:

“Share means share in the share capital of a company.”

Thus, a share represents not just financial interest, but also governance rights, such as voting and
dividend entitlement.

3. Members’ Right to Transfer Shares

The right to transfer shares is a fundamental principle of corporate law. While this right may be
subject to restrictions under the articles of association (particularly in private companies), a
shareholder has a prima facie right to transfer shares.

“A shareholder has a prima facie right to transfer shares.”

— Bede Steam Shipping Co’s Case (1917)

Restrictions must be reasonable, and cannot completely negate this right.

4. Procedure for Transfer of Shares

a. Transfer Deed

The transfer of shares requires execution of a valid transfer deed.

i. Application for Registration

An application for the transfer must be submitted to the company for registration.

ii. Duly Stamped and Executed

A proper instrument of transfer, duly stamped and signed by both the transferor and
transferee, must be presented.

“Proper instrument duly stamped and executed by the transferor and the transferee has to be
made---When such instrument is delivered to the company along with the scripts, the
shareholding of company is said to be legally transferred.”
— Siddique Muhammad Malik v. Immad Iftikhar Malik, 2000 CLC 477

iii. In Case of Destruction of Instrument

If the original instrument is lost or destroyed, a duplicate may be submitted along with an
indemnity bond and relevant supporting documents.

b. Obligation of the Transferee

 Payment of Purchase Price: The transferee must pay the agreed consideration.
 Indemnity to Transferor: If required, the transferee must indemnify the transferor
against future claims.

c. Obligation of the Transferor

 Provide proper instrument of transfer and share certificate.

 Ensure that the certificate covers transferable shares.
 Assist in the registration process.

d. Transfer Procedure Requirements

The instrument must include:

i. Proper form of transfer

ii. Name of the company
iii. Names and addresses of transferor and transferee
iv. Distinctive numbers of shares
v. Date of execution
vi. Proper stamp duty

e. Splitting of Share Certificate

Shares may be split, and new certificates issued to facilitate partial transfers, with company
approval.

f. Scrutiny of Transfer

The company has the right to scrutinize the submitted documents to ensure compliance with
legal and procedural requirements.

g. Receipt to Person Lodging

A receipt acknowledging submission must be issued to the person lodging the transfer
documents.

h. Notice of Lodgement to Transferor

The company must notify the transferor upon lodgement of the transfer documents.
i. Register of Transfer

The company is obligated to enter the transfer in its Register of Members once the transfer is
approved.

j. Directors’ Power to Refuse Transfer

Directors may refuse to register a transfer on limited grounds, such as:

i. Defect or invalidity in the transfer deed

ii. Suspension of registration due to legal or regulatory constraints
iii. Non-payment of required fees
iv. Transfer is not in the interest of the company

Such refusal must be justified and not arbitrary.

k. Notice of Refusal to Transferee

If the transfer is refused, the company must notify the transferee, stating reasons for refusal
within a prescribed period.

l. Liability in Case of Default

If a company defaults in updating its register or fails to comply with the transfer procedure, it
may be liable to penalties under the Act.

5. Transfer to Successor-in-Interest

In case of events such as bankruptcy or incapacity, shares may be transferred to a successor-in-

interest, supported by legal documentation (e.g., succession certificate, court order).

6. Transfer to Nominee of a Deceased Member

If a deceased shareholder has nominated a person, the company shall transfer the shares to the
nominee after verifying the death certificate and relevant documentation.

7. Transfer by Nominee or Legal Representative

The nominee or legal representative may subsequently transfer the shares, subject to the same
requirements applicable to regular transfers.

8. Conclusion

The transferability of shares is central to the functioning of corporate entities. The Companies
Act, 2017 provides a detailed legal framework to regulate and facilitate share transfers while
safeguarding the interests of all stakeholders. Compliance with procedural requirements ensures
the legitimacy of ownership, promotes transparency, and strengthens corporate governance.