Introduction
Since march 2020 I written have several articles on sale and purchase of existing shares as well as subscribing for or allotment of new shares. In this article, I am sharing with you key issues to look out for when buying existing shares.
Identity of the shares
It is important to identify the shares one will be buying. This includes identifying the company for example H & H (Private) Limited so that it is clear the shares being purchased were issued by that company. It is also important to make reference to the actual series of shares being purchased, for example shares 51-100 currently held under Share Number 2. The class of shares should be identified, for example ordinary shares.
Owner of the shares
Just like when buying anything else, it is advisable to ensure the purchaser is dealing with the lawful owner or an authorised representative thereof. Refer to the current share certificate(s) and register of shareholders to identify the shareholder as legitimate. Compare the seller’s details and the names and registration details per the company records. If shares are being sold by an individual, request national identity documents and check. If the shares are being sold by an entity, verify the full names and registration details of the entity that currently holds the shares.
Authority to sell
In the case of shares held by an individual, ensure it is the individual himself or herself acting in that transaction. Where another person is representing the seller of the shares, ensure the existence of properly executed Special Power of Attorney.
For shares held by an entity, such as a company, ensure authority to sell is granted through a resolution properly passed by people charged with governance of that entity, such as a company’s directors. Such a resolution will also appoint a person to represent the entity.
Transfer of ownership
I have come across share sale agreements which do not address when shares will be transferred from the seller to the purchaser. Parties have to agree when transfer takes place. There are three common scenarios:
- Where shares are treated as indivisible such that all of them will be transferred upon payment of full purchase price. This is akin to what is done in the case of an immovable property.
- Where shares are treated as indivisible and parties agree that all of them can be transferred when part payment has been made.
- Where shares are treated as divisible such that the right to receive transfer is accrued as and when part payments are made.
Price and taxes
In the buying and selling of shares it has to be stated whether the shares are inclusive or exclusive of taxes. One common tax is Capital Gains Tax, which sellers have to pay upon disposal of their shares. I have come across situations where sellers and buyers have argued, after signing an Agreement, as to who should pay CGT. The law is very clear, that it is the seller.
Formalities
It is common for parties to ignore important formalities. For example, parties have to sign Share Transfer Forms, when payment is made, wherein the seller gives up shares and the purchaser get empowered to receive transfer. It is important to have this document signed to avoid a somersault by a seller who may want to reverse the sale after receiving payment.
It is also important for the current share certificate to be cancelled and a new one issued in favour of the purchaser. I have encountered situations where a new shareholder does not have share certificates for the shares other than a Share Purchase Agreement and proof of payment for the shares.
Conclusion
Transactions involving sale and purchase of shares take place almost every day. The above issues should be looked at closely when transacting.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice. It is based on research done using AI.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He sits on the Board of the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
