The law regarding transfer of shares by transmission

A. Introduction

nA Share can be defined as a single unit of ownership in a Company. It is transferred from one person to another through a share transfer document duly executed by or on behalf of both the transferor and the transferee. nSection 497 of the Companies Act provides that a company may only register a transfer of shares if a proper document of transfer (transfer of shares form) has been delivered to it, failure to which the said transfer is rendered void.nThe registration of a deed of transfer of shares confers upon the transferee's proprietary rights over shares in a company. This is asserted by Section 323 of the Companies Act which provides that shares in a company are the personal property of the shareholder. Suffice to say that shares form part of the estate of a shareholder upon their demise.nThe shares of a deceased shareholder are transmitted by operation of law to their personal representative who thereafter executes a deed of transfer of share in order to effect transfer of shares to the intended beneficiary or third party.n

B. Transmission of Shares

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i. Appointment of a personal representative and/or administrator

nSection 4 of the Law of Succession Act provides as follows: -n

nBy a dint of the above section, the succession of shares of a deceased shareholder domiciled in Kenya is regulated by the Law of Succession Act Cap 160 and the Companies Act No. 17 of 2015. nThe appointment of a personal representative and/or administrator of the estate of a shareholder is regulated by the Law Succession Act Cap 160. The said personal representative and/or administrator gains title over the estate of the deceased shareholder upon their appointment.n

ii. Transmission of Shares

nIn the words of Dr. Kibaya Laibuta in his book entitled “A Handbook of Company Law”, the term transmission refers to the automatic transfer of ownership of a shareholder’s share by operation of law upon the said shareholder’s demise or bankruptcy. nAs indicated above, the succession of shares of a deceased shareholder is regulated by the Law of Succession Act Cap 160 and the Companies Act No. 17 of 2015, if the shareholder was domiciled in Kenya upon their demise. n

a. Transmission of shares held in common

nIn the event the deceased shareholder co-owned shares in a company prior to their demise, the said shares are transmitted to the surviving co-owner in compliance with the principle of survivorship.nThe principle of survivorship is well elaborated in the High Court case of In re Estate of Johnson Njogu Gichohi (Deceased) [2018] eKLR where the court held as follows: - n

nSimilarly, in the case of Aliya w/o Jaganath Rama Charan Nagia alias Mahmoud Issa v Hussein Issa Nagia & 2 others [2017] eKLR, the court held as follows: -n

nTo this end, co-owned shares are automatically excluded from the testamentary process as they accrue to the surviving shareholder.n

b. Transmission of shares held individually

nThe transmission of shares is regulated by the subject company’s articles of association and in the absence thereof, it is regulated by Regulation 8(2) of the Companies (General) Regulations, 2015 which provides for the Model Articles for Private Companies Limited by Shares.nClause 65 of the said Model Articles for Private Companies Limited by Shares provides as follows: -n

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1. If a member dies, the company may recognize only the following person or persons as having any title to a share of the deceased member:na. if the deceased member was a joint holder of the share, the surviving holder or holders of the share; andnb. if the deceased member was the sole holder of the share, the legal personal representative of the deceased member.

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nClause 67 of the Model Articles for Private Companies Limited by Shares further provides that:-n

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1. If a transmittee chooses to become the holder of a share, the transmittee shall notify the company in writing of the choice.

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2. Within 2 months after receiving the notice, the directors shall—na. register the transmittee as the holder of the share; ornb. send the transmittee a notice of refusal of registration

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3. If the transmittee chooses to have the share transferred to another person, the transmittee shall execute a document of transfer in respect of it.”

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nThe transmittee in this instance refers to the personal representative and/or administrator of the estate of the deceased shareholder.nBy a dint of the above clauses, there are two ways in which the personal representative can procure the transfer of the deceased member’s shares:-nn1. The Personal Representative can choose to become the Holder of the SharenIn this case, the personal representative is required to notify the subject Company of their choice to become a shareholder in writing.nThe Directors of the Company are thereafter permitted to register the personal representative as a Shareholder as soon they can and no later than two months upon receipt of the aforementioned notice from the personal representative.nn2. The Personal Representative can choose to have the share transferred to another personnIn this case, the personal representative can choose to transfer the deceased’s shares to a beneficiary of the estate of the deceased shareholder. The personal representative has to execute a deed of transfer of shares as the transferor, in order to transfer the shares to the beneficiary, as the transferee.nnThe said deed of transfer of shares should soon thereafter be lodged at the Companies registry to have the register of members at the Companies registry read the beneficiary’s name as the holder of the shares in the subject Company.n

c. Documents required for Transmission of Shares

nThe following documents should be lodged at the Companies registry in order to effect the transfer of shares by transmission to a beneficiary: -n

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1. Certified copy of the Death certificate of the deceased shareholder;

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2. Certified copy of Identification card or surrender form of the deceased shareholder;

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3. Certified copy of the grant of letters of administration in the event the shareholder died intestate or certified copy grant of probate in the event the shareholder died testate;

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4. Certified copy of Certificate of confirmation of Grant from the High Court. 

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5. Certified copy of the Identity card of the personal representative and/or administrator;

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6. Certified copy of the Identity card of the Beneficiary;

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7. Original share certificates of the subject companies; and

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8.  Duly filled transfer of shares form.

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C. Conclusion

nTransmission of shares safeguards the continuity of membership in a company which in turn fortifies the sustainability of the day-to-day running of a company as it mitigates the possibility of disruptive withdrawal of shareholders.nnThis article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary as set out in the article should be held without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact Charles Wamae vide charles@wamaeallen.com nn