When does share title pass when you sell shares in a private company?
Previously, it passes when the seller and the buyer signs a document called the share transfer form. The date of the share transfer form is the effective date on which the share title passes.
Has that position changed with the enactment of the Companies (Amendment) Act 2014 (No. 36 of 2014) (the “Amending Act”)?
The Amending Act introduced new section 126(3), which reads “A transfer of any share in a private company on or after [ __ insert actual date] does not take effect until the electronic register of members of the company is updated by the Registrar under section 196A(5),” (the “Amendment”).
The Amending Act aims to remove the requirement for private companies to maintain a register of members, improve public access to shareholding information, and enhance corporate governance (Response by Senior Minister of State for Finance Mrs Josephine Teo during the Second Reading of the Companies (Amendment) Bill 2014).
This meant that, for the transfer to be effective, any share transfer in a private company must be updated by the Accounting and Corporate Regulatory Authority (“ACRA”) through registering the transfer on the electronic Register of Members (“eROM”). This amendment, effective from 03 January 2016, remains unchanged to this day.
As such, to register an effective share transfer today, companies must pay stamp duty under section 45 of the Stamp Duties Act 1929 (2021 Rev Ed) before filing the transaction with ACRA via BizFile+ (“Filing”). Otherwise, a penalty is incurred under section 66(1) of the Stamp Duties Act 1929.
Prior to the Amendment, companies could indicate the effective date of a share transfer by writing the intended date in the share transfer form.
However, since the Amendment, the effective date of a share transfer is disputed. Some may argue that it is still the date written into the share transfer form whilst others believe that it is now the date on which the company’s eROM is automatically updated by ACRA after the Filing.
To this end, the Ministry of Finance (MOF) has clarified in the General Company Administration Legislation that parties can indicate the effective date of transfer on the eROM. This is similar to the previous practice of entering the date on the Register of Members. This means parties can still treat the effective date of transfer as the date written into the share transfer form.
However, in practice, when doing the Filing, there is a field on the ACRA website which permits the person doing the filing to type in the effective date of transfer, based on what is written into the share transfer form. Even so, for reasons unknown and inexplicable, when one extracts the eROM after the filing, oh horror, both the “Date Entered As A Member” and the “Date of Entry into the Register” is reflected as the date of Filing. The effective date of transfer which was painstakingly typed into the ACRA website during the Filing has inexplicably vanished.
There is no electronic Register of Transfers. This must be produced manually by the company secretary and hence will look like the old-school Register of Transfers that company secretaries have been maintaining for hundreds of years.
Is there any way to change the date in the eROM?
One way to rectify this is under section 12(C) of the Companies Act 1967 (2020 Rev Ed). This is subject to approval by ACRA which depends on its discretion as to whether the error is typographical, clerical, or unintended. ACRA’s approach is further explained in Practice Direction No. 1 of 2017, illustrating its powers. However, with reference to the five illustrations provided in the Practice Direction and their respective explanations, the scope as to which ACRA deems an error as rectifiable is restrictedly narrow.
In illustration no. 3, Company X filed an annual return stating that its AGM date was on 30 Sep 2010 when it was held on 16 Nov 2011. To correct this, X applied to rectify the AGM date from 30 Sep 2010 to 16 Nov 2011. In such a situation, ACRA has decided that it will not rectify the register, as the annual return should not have been filed when the AGM had not been held.
Conversely, in illustration no. 2, where Company X omitted to file the auditor’s report when filing its annual return together with its audited financial statements, ACRA’s decision it that it may rectify the register since the audited financial statements filed together with the annual return were not in order. Therefore, X may file a Notice of Error attaching a complete set of financial statements with the signed auditor’s report.
Through the illustrations, it is our opinion that it is unlikely that the date difference in the eROM will be regarded by ACRA as an error at all. This is because, in fact, no error has been committed by the individual who completed the Filing. All the correct information and documents have been provided in the course of the Filing. As such, it is unlikely that ACRA will change the date in the eROM to reflect the actual date written into the share transfer form.
As an alternative, companies can also apply to the Singapore Court under Section 12(B) of the Companies Act 1967 (2020 Rev Ed) to rectify on the basis that it is an error contained in a document filed or lodged with the Registrar, or an error in the filing or lodgement of a document relating to the company. But again, it is not possible to show that there is any error within this section.
In conclusion, ACRA needs to change the way eROM displays the effective transfer and filing date. Otherwise, the Register of Members cannot provide accurate information.
For more information on this article, please contact Jennifer Chih and Goh Jun Wei