The term for this is transmission of shares. It’s the legal process of passing on shares from a shareholder to another person because of an event that’s not a voluntary sale or gift.
This often happens when a shareholder passes away, and their shares are inherited by an heir or a legal representative of their estate.
This process is different from a transfer of shares, which is a deliberate and voluntary act between a willing seller and a willing buyer.
A transfer requires a formal deed and the payment of stamp duty.
Transmission, on the other hand, happens “by operation of law,” meaning it’s a legal consequence of specific events like a death or bankruptcy.
Why Transmission Happens?
The most common reasons for the transmission of shares are:
• The death of a shareholder.
• The bankruptcy of a shareholder.
The Laws That Govern It
In Kenya, the transmission of shares is governed by several key laws:
1. The Companies Act, 2015: This is the main law for all companies in Kenya. It sets out the general rules for how shares are handled, including how they can be transferred and transmitted.
2. The Companies Regulations, 2015: These regulations provide more detailed procedures, including Model Articles for both private and public companies. These model articles have specific provisions for handling share transmissions.
3. The Law of Succession Act: This law dictates what happens to a deceased person’s property, including their shares. It specifies who the legal representative (like an executor or administrator) is and the process for obtaining the necessary court documents to deal with the shares.
4. The Insolvency Act: This law addresses what happens when a person or company becomes bankrupt. It states that a bankrupt person’s assets, including their shares, are taken over by an official assignee or trustee.
Key Things to Know About Transmission
• Required Documents: To complete a transmission, the legal representative must provide the company with specific documents. In the case of a shareholder’s death, this includes the death certificate and the Grant of Probate (if there was a will) or the Grant of Letters of Administration (if there was no will).
• Liability Remains: Even after a shareholder dies, any outstanding liabilities associated with their shares (for example, if they were only partly paid) are still the responsibility of their estate. The legal representative must settle these liabilities.
• In Case of Bankruptcy: This requires a court order.
• The Company’s Role: The company’s directors are responsible for reviewing the documents. If they are satisfied, they must update the company’s register of members and issue a new share certificate to the new shareholder.
They can refuse to register the new owner if the documentation is not in order or if the company’s articles allow for it, but they must provide a reason for their refusal.
Exemptions from Stamp Duty
While stamp duty is generally required for share transfers, some specific situations may be exempt. These exemptions are rare for a standard transmission due to death, but they do exist for certain corporate or family arrangements.
Examples of potential exemptions include:
1. Transfers between associated companies: If one company owns at least 90% of the other, a transfer of property or shares between them as part of a restructuring may be exempt.
2. Transfers to a family trust: Transfers of property, including shares, to a registered family trust may be exempt under specific conditions.
3. Transfers between spouses: The transfer of property, which can include shares, between a husband and wife is also exempt.
4. Specific public interest exemptions: The Cabinet Secretary for the National Treasury has the power to exempt instruments from stamp duty if it’s in the public interest, and this must be published in the Kenya Gazette.
Documents Required for a Transmission
To legally process a transmission of shares under the Companies Act, 2015, a number of documents must be presented to prove the event that triggered the transmission and to provide the legal authority to pass on the shares.
The required documents typically include:
1. A certified copy of the death certificate for the deceased shareholder.
2. A certified copy of the Grant of Probate (if there was a will) or Letters of Administration (if there was no will). These court documents authorize the personal representative to manage the deceased’s estate.
3. A certified copy of the Certificate of Confirmation of Grant from the High Court.
4. The original share certificates for the shares being transmitted.
5. A completed and signed share transfer form (often a Form of Transfer).
6. Identification documents for the deceased shareholder, the personal representative, and the beneficiary.
These documents are essential to prove the legal right to the shares and to process the transmission with the company’s registrar and the Business Registration Service. Without them, the company cannot legally update its register of members.
Ready for a secure and straightforward transmission? We’ve got you covered. Reach out to us at info@kenbizregistrars.com today.
