## Legal Framework for Share Transfer in Bangladesh
In Bangladesh, the transfer of shares in a private limited company is governed primarily by the Companies Act, 1994, along with relevant regulations issued by the Registrar of Joint Stock Companies and Firms (RJSC) and the company’s own constituting documents, particularly the Articles of Association (AOA).
Primary Legal Provisions:
Sections 38 and 39 of the Companies Act set out the legal foundation for share transfers.
Section 38 – Transfer of Shares:
– Sets out requirements for valid share transfer
– Requires proper instrument of transfer
– Board approval necessary
– Registration in company records mandatory
Section 39 – Registration of Transfer:
– Company must maintain Register of Members
– Transfer effective only after registration
– Transferee becomes shareholder upon registration
Section 43 – Rectification of Share Register:
– Court can order rectification if transfer disputed
– Available remedy for fraud or mistake
– [High Court Division] has jurisdiction
Official Resources:
– [RJSC Official Website]
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## Conditions for Valid Share Transfer
Under the law, a transfer of shares will only be valid if the following conditions are fulfilled:
1. Proper Instrument of Transfer
A properly executed instrument of transfer, duly stamped and signed by both the transferor and transferee, along with the share certificate, is submitted to the company.
Requirements:
– Form 117 (Share Transfer Deed) completed
– Duly stamped as per Stamp Act
– Signed by transferor (seller)
– Signed by transferee (buyer)
– Original share certificate attached
2. Board Approval
The Board of Directors approves the proposed transfer.
Process:
– Board meeting convened
– Transfer proposal presented
– Directors vote on approval
– Board resolution passed
– Minutes recorded
3. Registration in Company Records
The company records the transfer in its Register of Members, removing the name of the transferor and entering the name of the transferee.
Updates Required:
– Register of Members updated
– Share Transfer Register maintained
– New share certificate issued
– Old certificate cancelled
Only after all three conditions met does transfer become legally effective.
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## Step-by-Step Share Transfer Process
In practice, completing a share transfer in Bangladesh usually involves several structured steps.
Step 1: Legal Due Diligence
Before initiating a share transfer, the prospective buyer should conduct a thorough legal and financial due diligence of the company.
This typically includes reviewing:
Corporate Documents:
– Memorandum and Articles of Association
– Certificate of Incorporation
– Shareholders’ Agreement (if any)
– Share certificates and statutory registers
Financial Records:
– Audited financial statements (last 3 years)
– Tax returns and compliance
– Outstanding liabilities
– Asset valuation
Legal and Compliance:
– Regulatory licenses and approvals
– Existing loan agreements or securities
– Pending litigation or disputes
– Intellectual property rights
Pre-emption Rights Check:
In many private companies, the Articles of Association contain restrictions on share transfers. One common restriction is the pre-emption right, which requires a shareholder wishing to sell shares to first offer those shares to existing shareholders before transferring them to an external party.
Valuation:
Valuation of shares is also an important consideration. Buyers should verify that the proposed purchase price corresponds with the company’s financial records and audited statements.
Methods:
– Net asset value method
– Discounted cash flow
– Price-earnings ratio
– Book value per share
Lender’s Consent:
If the company has outstanding loans, the lender’s consent may also be required under section 27A of the Banking Companies Act, 1991.
Step 2: Corporate Approvals
Once due diligence is complete, the shareholder intending to transfer shares must formally notify the Board of Directors.
Process:
Notice to Board:
– Transferor sends written notice
– States intention to transfer shares
– Provides transferee details
– Specifies number of shares and price
Board Meeting:
Under section 38(7) of the Companies Act, the Board has discretion to approve or refuse a share transfer. As a result, the company generally convenes a Board Meeting or sometimes an Extraordinary General Meeting (EGM) to consider and approve the proposed transaction.
Agenda:
– Review transfer proposal
– Verify compliance with AOA
– Confirm pre-emption rights satisfied
– Vote on approval
– Pass board resolution
At this stage, the Board may also confirm that any pre-emption obligations have been satisfied and may issue a No Objection Certificate (NOC) acknowledging compliance with the company’s internal rules.
Documents Issued:
– Board Resolution approving transfer
– No Objection Certificate (if required)
– Authorization for share transfer
Step 3: Payment of Share Purchase Price
After corporate approval is obtained, the buyer proceeds with payment for the shares.
Domestic Transactions:
If both the buyer and seller are Bangladeshi individuals or companies, documentary proof of payment is generally not required for RJSC purposes.
Payment Methods:
– Bank transfer
– Cheque payment
– Cash (if permitted under company policy)
Proof of payment recommended:
– Bank transfer receipt
– Cancelled cheque
– Payment acknowledgment
Foreign Investment Transactions:
However, when the buyer is a foreign investor or Non-Resident Bangladeshi, the transaction must comply with foreign exchange regulations. In such cases, the RJSC may require an Encashment Certificate from an authorized bank confirming that the purchase price has been received in accordance with the rules of Bangladesh Bank.
Requirements:
– Payment through banking channel
– In convertible foreign currency
– Encashment Certificate from authorized bank
– Bangladesh Bank approval (if required)
– Compliance with Foreign Exchange Regulation Act
Additionally, if the transferee resides abroad, certain transfer documents and affidavits may need to be consularised through the Bangladesh Embassy or High Commission.
Consularisation Process:
– Notarize documents in home country
– Authenticate at Bangladesh Embassy
– Translate to English/Bengali (if needed)
– Submit authenticated copies to RJSC
Step 4: Execution of Form 117 and Payment of Stamp Duty
The formal instrument used for transferring shares is Form 117, commonly known as the Share Transfer Deed.
Documents to Submit:
To complete the transfer, the transferor must submit the relevant documents to the RJSC, including:
– Form 117 duly completed
– Affidavit relating to the share transfer
– List of directors
– Audited financial statements of the company
Execution Requirements:
Under the amended provisions of section 38(3) of the Companies Act, the transferor generally needs to appear before the Registrar to sign Form 117.
Process:
– Transferor visits RJSC office
– Presents identification documents
– Signs Form 117 before Registrar
– Oath/affirmation administered
– Document witnessed and sealed
Stamp Duty:
Stamp duty must also be paid on the transaction. The current rate is 1.5% of the face value of the shares being transferred.
Calculation Example:
– Face value of shares: BDT 1,00,000
– Stamp duty at 1.5%: BDT 1,500
Payment Method:
– Court fee stamps purchased
– Affixed to Form 117
– Cancelled properly
After execution, a copy of the signed Form 117 must be delivered to the company for record purposes.
Step 5: Updating Company Register and Issuing New Share Certificates
Once all formalities are completed, the company must update its statutory records.
This includes:
Register Updates:
– Updating the Register of Members
– Recording the transfer in the Share Transfer Register
– Updating the Minutes Register
Process:
1. Remove transferor’s name from Register of Members
2. Enter transferee’s name and details
3. Record date of transfer
4. Note share certificate numbers
5. Update shareholding percentage
Share Certificate:
Following these updates, the company issues a new share certificate to the transferee or amends the existing certificate to reflect the change in ownership.
New Certificate Contains:
– Transferee’s full name and address
– Number of shares held
– Certificate number
– Date of issue
– Company seal and authorized signature
Only after the transferee’s name is recorded in the Register of Members does the share transfer become legally effective.
Legal Effect:
– Transferee becomes legal shareholder
– Entitled to dividends
– Voting rights activated
– Can attend shareholder meetings
Timeline:
Total process typically takes:
– Due diligence: 2-4 weeks
– Board approval: 1-2 weeks
– Payment and documentation: 1 week
– RJSC filing and stamp duty: 1-2 weeks
– Certificate issuance: 1 week
Total: Approximately 6-10 weeks
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## Documents Required for Share Transfer
In practice, the following documents are typically required:
Mandatory Documents:
1. Form 117 (Share Transfer Deed)
– Properly filled and stamped
– Signed by transferor and transferee
2. Affidavit by Transferor
– Sworn before notary or magistrate
– States details of transfer
– Confirms no fraud or misrepresentation
3. Board Resolution
– Approving share transfer
– Authorizing execution of documents
– Signed by directors
4. Certificate of Transfer of Shares
– Issued by company
– Confirms transfer approved
– Company seal affixed
5. Original Share Certificate
– To be cancelled
– Submitted to company
6. No Objection Certificates (if applicable)
– From existing shareholders (if pre-emption right)
– From lenders (if loan covenants)
– From regulatory authorities (if regulated sector)
7. Letter of Resignation from Board (if applicable)
– If transferor is director and resigning
– Effective date specified
8. Letter of Authorization (if applicable)
– If representative signing on behalf
– Power of attorney if needed
9. Audited Financial Statements
– Latest available
– Certified by chartered accountant
10. List of Current Directors
– Updated list
– With addresses and details
Additional for Foreign Investors:
11. Encashment Certificate
– From authorized dealer bank
– Confirms foreign exchange compliance
12. Consularised Documents
– Passport copies
– Power of attorney (if applicable)
– Authenticated by Bangladesh mission abroad
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## Disputes and Rectification of Share Register
If a dispute arises over a share transfer—for example due to fraud, misrepresentation, mistake, or undue influence—an affected party may apply to the High Court Division of the Supreme Court of Bangladesh under section 43 of the Companies Act for rectification of the share register.
Grounds for Rectification:
Valid Grounds:
– Fraud in execution of transfer
– Misrepresentation of material facts
– Undue influence or coercion
– Mistake in recording transfer
– Transfer without proper authority
– Breach of pre-emption rights
– Non-compliance with AOA
Court Proceedings:
Application Process:
– File writ petition or suit in High Court
– Present evidence of grounds
– Serve notice on company and parties
– Attend hearings
The court has wide discretion to examine the evidence and determine whether the transfer should be upheld or reversed.
Court Powers:
– Order rectification of register
– Direct company to restore previous shareholder
– Award damages for loss suffered
– Set aside invalid transfer
– Order costs against losing party
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## Get Expert Legal Assistance
Share transfers in Bangladeshi private companies require careful compliance with statutory requirements, corporate governance procedures, and regulatory approvals. Proper due diligence, documentation and corporate approvals are essential to ensure that the transfer is valid and legally enforceable.
Why Choose Advocacy Legal
Advocacy Legal, led by Advocate Md. Noushad Parvez provides comprehensive legal services for share transfers and corporate transactions.
Our Share Transfer Services:
Due Diligence:
– Legal and financial due diligence
– Review of corporate documents
– Valuation assistance
– Risk assessment
Documentation:
– Draft share transfer agreements
– Prepare Form 117 and affidavits
– Board resolutions and NOCs
– All supporting documents
Regulatory Compliance:
– RJSC filing and follow-up
– Stamp duty calculation and payment
– Foreign investment compliance
– Bangladesh Bank approvals
Corporate Governance:
– Board meeting organization
– Shareholder meeting facilitation
– Articles of Association review
– Pre-emption rights compliance
Dispute Resolution:
– Negotiate settlements
– High Court litigation
– Rectification applications
– Shareholder disputes
Why Choose Us:
Efficiency: Quick turnaround time
Expertise: Corporate law specialists
Network: Good relationship with RJSC
Full Service: End-to-end assistance
Transparent Fees: Clear pricing
Contact Advocacy Legal:
Phone: +88 02 41090957 | +88 01795762000
WhatsApp: +88 01795762000
Email: info@advocacylegalbd.com
Website: www.advocacylegalbd.com
Office: 3rd Floor, House-37, Road-7, Sector-3, Uttara, Dhaka-1230, Bangladesh
Business Hours: Saturday – Thursday, 11:00 AM – 8:00 PM
Free Initial Consultation Available
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## Frequently Asked Questions
1. How long does share transfer take in Bangladesh?
Typically 6-10 weeks depending on:
– Due diligence duration
– Board meeting scheduling
– RJSC processing time
– Document preparation
Can be expedited with professional assistance.
2. What is the stamp duty rate for share transfer?
Current rate: 1.5% of face value of shares (not market value)
Example:
– 1000 shares at BDT 100 face value = BDT 1,00,000
– Stamp duty = BDT 1,500
3. Can Board of Directors refuse share transfer?
Yes, under section 38(7) of Companies Act, Board has discretion to refuse.
However:
– Refusal must be reasonable
– Cannot be arbitrary
– Must comply with Articles of Association
– Shareholder can challenge in court if unreasonable
4. Is share transfer valid without RJSC filing?
No, transfer becomes effective only after:
– Registration in company’s Register of Members
– Not just RJSC filing
– Company must update internal records
RJSC filing is for stamp duty compliance, not for transfer validity.
5. What if shares are transferred without proper procedure?
Transfer may be invalid and can be challenged.
Consequences:
– Transferee may not be recognized as shareholder
– Cannot vote or receive dividends
– Court can rectify register
– Transfer must be redone properly
6. Can foreign investors buy shares in Bangladeshi company?
Yes, subject to:
– Foreign exchange regulations
– Bangladesh Bank approval (if required)
– Encashment certificate from bank
– Compliance with FDI policies
– Sector-specific restrictions
7. What is pre-emption right in share transfer?
Right of existing shareholders to buy shares before they are sold to outsider.
Process:
– Transferor must offer shares to existing shareholders first
– Notice period (usually 14-30 days)
– If shareholders decline, can sell to outsider
– Protects existing shareholders’ control
8. How is share value determined for transfer?
Methods:
– Agreed price between parties
– Book value per share
– Net asset value
– Discounted cash flow
– Professional valuation
Market value often differs from face value.
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## Conclusion
Share transfer in a private limited company in Bangladesh involves multiple steps, regulatory compliance, and proper documentation. Whether you are buying or selling shares, understanding the legal requirements and following the correct procedure is essential to ensure a valid and enforceable transfer.
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Disclaimer: This article provides general information about share transfer procedures in Bangladesh. It should not be construed as legal advice. Every transaction is unique and requires professional legal guidance. Contact Advocacy Legal for personalized assistance.