When do you Legally Own Shares?

If you have entered into a shareholders’ agreement with a company or agreed to purchase the shares of someone else in writing, you may think that you now own those shares. But this is not the case.

There are several steps involved in transferring shares before you are considered to legally own them, including:

• Completing a share transfer form;
• Company meeting and minutes; and
• Share certificates and notifying the Australian Securities Investment Commission (ASIC).

Below is an overview of the steps involved in purchasing or transferring shares to make you the legal owner.

Share Sale Agreement or Shareholders’ Agreement

Firstly, you need to consider the processes set out in the relevant agreement you are signing. If the company you are buying shares in has a shareholders’ agreement, you will need to read through it, understand your obligations and rights as a shareholder, and sign the agreement or a deed of accession to the shareholders’ agreement. If you are purchasing the shares from someone else, they will have provided you with a share sale agreement. This is the legal instrument between you and the vendor setting out the conditions for the vendor to sell/transfer their shares in the company. Once the agreements are validly executed, the vendor will to need transfer you the shares.

Share Transfer Form

After signing the agreement, it is likely that you will have to complete a few steps before the vendor gives you a signed share transfer form. Some of the steps required beforehand include paying the vendor for the shares, and possibly signing an employment agreement if you will be employed by the company as well as owning shares.

Company Minutes and Minutes of Resolution

Following receipt of the share transfer form, the company will need to have a meeting where a resolution is passed to allow the transfer of the shares. The company’s directors and shareholders must pass the resolution, depending on the process set out in the company constitution or the shareholders’ agreement. Once this has occurred, the meeting’s minutes also need approval, and the approved company resolution is given to you.

Share Certificates

Next, the company will need to cancel the vendor’s share certificate and issue a new share certificate to you. The share certificate will set out the company details, your details and the specifics of the shares you now own, including whether they are full or partly paid, preference or ordinary shares and their share serial numbers.

Ancillary Documents

The vendor may also need to provide you with more documents depending on a number of factors. If the vendor were a company director, they would need to provide you with a letter of resignation as a director. The same applies if they were the company secretary. If they were also an employee of the company, they would need to provide you with a letter of resignation and any copies of company documents in their possession.

Notifying ASIC

Once all of the legal documentation has been finalised and you are the owner of the shares, the company will need to notify ASIC within 28 days of the date the documents were signed. This is done by lodging a Form 484 to change the member details and the amount of the shareholdings, including adding you as a new member of the company. If the vendor has resigned as a director and/or company secretary, this will need to be updated with the same form, and can all be done online through ASIC’s website.

Once this is completed, the company will need to update the shareholders’ register. The register is usually kept as a record on computer at the company’s registered office, and includes the following:

• Name and address of each member;
• The number of shares held;
• Class of shares; and
• The amount paid or unpaid on the shares.

Stamp Duty

It’s important to note that depending on the state or territory that you and/or the company reside, you may have to pay stamp duty on your purchase of the shares. This is managed by state departments. In NSW, for example, this is the Office of State Revenue.

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Congratulations, you now the legal owner of your shares! Questions about the process? Get in touch with our business lawyers on 1300 544 755.