Let’s us walk you through on the “story” of Shares Allotment vs Shares Transfer.
The definition of share:
Share is an intangible rights, interests and ownership and companies raise the fund through selling of shares in order to run the business activities and in return, the company shares its profits through distribution of dividend according to the ordinary shareholding. FYI ordinary shareholders are having the rights off:
- Rights to be in the EGM/ AGM and vote;
- Rights in enjoying dividend as part of the profit made from the business;
- To have back surplus upon company strike off or wind-up;
- To receive email, information and memo from the Company.
The directors can grow the company or to quit as a member through the shares mobility in either Shares Allotment or Shares Transfer:
The shares allotment is a process in issuing new shares to either existing or new shareholders where the process will be determined by the Directors through passing the Ordinary Resolution. The directors will have the option in shares allotment for cash, non-cash and allotted at a premium as it can be happened in the following scenario:
- Capital raising for the Company;
- Bringing in new members/ investors;
- Turning company owning to directors into paid up shares;
- Requirements by banks, creditors or project companies in showing a stronger group structure;
- Preparation for redemption of shares;
- Investment/ money being invested to the company accounts;
- No STAMP DUTY.
Once the directors are ready for shares allotment, they will need to inform the company secretary and they will prepare for the proceedings. However, for some companies, the existing directors can have option to transfer to new members (family members or friends) or as a exit plan and in return the the directors will get cash payment or non cash (shares in other company or assets).
In short, the shares transfer is a process where the existing director sells his stake to a new member or a private limited and the scenarios are as follows:
- Shareholder in exiting the company by transferring the shares to a new member;
- Existing shareholder in sharing the business by bringing new shareholder through transferring a part of his shares to the new member;
- Succession planning; for example from father to son or spouse;
- Shares for share exchange with other private limited;
- Company being taken over by a new entity or shares restructuring;
- Shares buyer to transfer the money to the shares seller directly;
- STAMP DUTY is applicable.
For shares transfer, stamp duty will be calculated by 1% by LHDN and upon completing the process, the authority (LHDN) will be generating a stamping certificate as a proof or cleared payment. For that, once the directors had made up their mind in shares transfer; then they will need to inform the company secretary for proceedings of work.
Shares Allotment vs Shares Transfer
The main difference of both is shares allotment is creating new shares for existing shareholders or to new shareholders while shares transfer is only involving the transfer of existing shares where stamp duty is payable by the purchaser when the shares are transferred.