When you’re looking to bring in new investors to your business, increase your percentage of shares, or even exit a company – one of the main things you will look to do is either issue or transfer shares.
Obviously, there are a lot of other scenarios in which you’ll need to make changes to your shares.
You might be looking to issue initial shares when you’re registering, or even transfer some of the existing shares to other shareholders.
But, how do you exactly do this?
Both of these scenarios have their own unique processes.
However, these processes aren’t common knowledge, and most businesses aren’t aware of the laws and regulations they need to follow.
This often leads to a lot of confusion and inefficiency in most companies.
So, if you’re looking for the right way to issue or transfer shares in your Private Limited Company, this blog will guide you.
It will walk you through how to issue shares using Form 6, and transfer shares using a ‘Share Transfer Form’.
Let’s get started.
Before we answer this question, we need to understand what a share is.
Think of a share as a piece of a company.
Company owners usually divide an organization into really small pieces and sell them off in exchange for money.
When you buy a piece or even a few pieces – you end up owning a part of a company.
Companies use the money they acquire from selling shares to grow throughout.
Limited Companies like Private Limited Companies or Public Limited Companies both issue shares.
The difference between these two companies is that Private Limited Companies only issue shares to a limited number of select buyers, while the other sells its shares to the general public via the stock market.
Whoever holds ‘shares’ are called shareholders.
In return for buying the shares, shareholders are paid ‘dividends’
Your company undergoes an initial share issue during the company registration process.
This is because, whenever you register a Private Limited Company in Sri Lanka, you need to have at least one shareholder.
In order to appoint this shareholder, your company issues shares for the first time through Form 1. This is a compulsory process that either you or your company secretary would have taken care of.
After your initial share issue, you may need to issue additional shares of your company. You would usually do this in order to bring in new investors to the company.
You have to follow a completely different procedure in order to do this.
That is the process we’re talking about in this blog.
If in case you’re looking for the process to issue your shares for the first time (while registering your Private Limited Company), read our blog about how to register a Private Limited Company in Sri Lanka.
So, how do Private Limited Companies exactly issue shares?
Let’s take a look.
We can divide the process of issuing shares into three main steps:
Step 01: Call a board meeting
Step 02: Pass a board resolution
Step 03: Submit the relevant documents
Let’s take a look at each step in a little more detail:
To begin the process of issuing shares, you first need to call a meeting with the company’s board of directors.
During this meeting, you will have to decide on:
Once you decide on the number of shares the company is going to issue, you need to pass a board resolution.
The Registrar of Companies (ROC) will file this board resolution as proof that the entire board of directors are in favour of the share issue.
When you’re issuing new shares of a company, you need to first offer them to your existing shareholders.
You can only offer your shares to new, third party prospects if your existing shareholders don’t already take the offer.
However, this depends on whether this obligation is mentioned in your articles of association. So, make sure to check your articles before you issue shares.
Once you pass the board resolution, it means that you’re ready to offer the shares to your shareholders.
However, you need to also communicate this to the Registrar of Companies (ROC).
Let’s take a look at how you can do that.
For share issues specifically, Form 06 should be filed with the ROC.
You need to submit the completed Form 06 + the board resolution to the ROC.
There are a couple of things that follow a company’s share issue:
1. You need to add the names of the new shareholders to your share register.
2. Within 20 days of the share issue, you need to hand in a notice to the ROC that describes:
3. Once the ROC accepts your notice, you need to issue a ‘Share Certificate’ to your new shareholders.
This share certificate will act as evidence of the shareholder’s ownership of a part of the company + define the number of shares they own
4. If the ROC finds that all the documents are in order, they will stamp Form 06 and give you a certified copy of it.
Institutions like banks will view your share issue as valid and lawful only if you have this stamped copy of form 06 with you.
As you grow your business, some shareholders may want to transfer their existing shares to other people.
They can transfer these shares either by a sale or agreement.
If they’re selling their existing shares, they can:
1. Sell to outside individuals OR;
2. Corporate entities such as another limited liability company.
Existing shareholders can also transfer shares to each other. They usually do this to change the proportion of shares they own.
There are a few scenarios where shareholders would transfer their shares.
Here are a few:
Step 01: Pass a board resolution
Step 02: File in the relevant documents
Step 03: Cancel the old share certificate (optional)
Step 04: Draw up a share transfer agreement (optional)
Step 05: Issue a new share certificate
Still, have more questions? Let us help you!
Before you decide to transfer your shares to someone else, the board of directors need to approve this change.
In order to do this, you need to organize a board meeting, discuss the impending transfer, and pass a board resolution as a sign of their approval.
Similar to issuing shares, you can begin transferring your shares once the board resolution is passed.
Likewise, you need to communicate this to the ROC.
Let’s take a look at how you can do that.
You need to fill in and submit a ‘Share Transfer Form’ + the board resolution to the Registrar of Companies.
You can also cancel the share certificate of the transferee.
However, this is optional.
If you want to further document the transfer, you can draw up a share transfer agreement.
This can map out:
1. The details of the transferer.
2. The details of the transferee.
3. Terms of the transfer.
4. Value of a share at the time of transfer.
5. Number of shares transferred.
Once the shares have been transferred, you have to issue new share certificates to both the transferor and transferee.
Issuing or transferring new shares of a company can be quite the handful.
There is a lot of paperwork to be filled in, processed and submitted amidst the chaos.
However, you don’t need to deal with the hassle yourself – let a professional take care of the messy documentation.
As a registered company secretary, Simplebooks has been helping businesses with their share issues and transfers for years.
There are many reasons as to why a company might issue shares:
1. To raise further capital
2. To extend its shareholder portfolio
3. Fund further expansion and growth
4. Build wealth
1. Ordinary share issue
2. Preferance share issue
3. Redeemable preference shares
4. Irredeemable preferance shares
Step 01: Decide on the number of shares you’re going to issue
Step 02: Hold a meeting with the board of directors
Step 03: Pass a board resolution confirming the share issue
Step 04: Submit the relevant documents (Form 6 + board resolution)
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