Transferring Shares in a BC Private Company: Approvals, Registers and Certificates

Shareholders in private companies transfer shares for many reasons: a partner buys out another, a parent gifts shares to an adult child, or an owner moves shares into a holding company. The deal may be simple, but the company's records have to catch up, and the transfer has to be permitted in the first place.

This article walks through the usual steps for transferring existing shares in a BC company under the Business Corporations Act and the Securities Transfer Act, from approvals to registers and certificates, and flags the tax point every family transfer raises.

Transfer or new issue?

A transfer moves existing shares from one person to another. The company's total issued shares stay the same; only the owner changes. Issuing new shares is a separate process under the Act and the articles, and it dilutes the existing shareholders. If you are bringing a new person into the company, our article on adding a shareholder to a BC company compares the two routes. This article focuses on transfers.

Under section 106.1 of the Business Corporations Act, the transfer of a security is governed by the Securities Transfer Act, except as the Business Corporations Act provides otherwise. The company's own articles and any shareholders' agreement then add their own rules.

Check the restrictions first

Most private companies restrict share transfers, and the restriction is usually found in two places:

• The articles. Private company articles commonly say shares cannot be transferred without the consent of the directors, or of a specified group of shareholders. Read the current articles in the minute book, not a template.
• The shareholders' agreement. Many agreements give the other shareholders a right of first refusal, require a buyer to sign on to the agreement, or set a valuation method. Our guide to shareholders' agreements in BC explains the common terms.

Under section 62 of the Securities Transfer Act, a transfer restriction imposed by the company is ineffective against a person who does not know about it, unless it is noted conspicuously on the share certificate or, for uncertificated shares, the registered owner has been given notice of it. This is one reason certificates commonly carry a legend about transfer restrictions.

The documents

A typical private company transfer involves:

• The agreement. A share purchase agreement for a sale, or a deed of gift or similar document for a gift, setting out what is transferred and on what terms.
• The transfer instrument. The seller signs a transfer, either on the back of the share certificate or on a separate share transfer form. Under section 73 of the Securities Transfer Act, the endorsement does not transfer the shares until the certificate, and any separate transfer document, is delivered.
• Approvals. A directors' resolution, or shareholders' resolution, consenting to the transfer if the articles require it, and any waivers of rights of first refusal.
• Registration. A resolution or instruction directing that the transfer be entered in the central securities register, the old certificate cancelled and a new one issued.

Once the requirements are met, section 86 of the Securities Transfer Act requires the company to register the transfer, provided among other things that it does not breach a restriction imposed by statute or by the company in accordance with section 62.

Updating the registers and certificates

• Central securities register. Section 111 requires the company to keep a central securities register recording, for each transfer, the name and last known address of the transferee, the class and number of shares, and the date and particulars of the transfer. Registration there is complete and valid registration for all purposes.
• Certificates. A shareholder is entitled, on request and without charge, to a share certificate or a non-transferable written acknowledgement of the right to obtain one, unless the shares are uncertificated (section 107). For uncertificated shares, the company must send the new shareholder a written notice with the required certificate information within a reasonable time after the transfer. A certificate must be signed manually by a director or officer, or by or on behalf of a registrar or transfer agent (section 110).
• Transparency register. If the transfer changes who is a significant individual, generally a person holding 25% or more of the shares or votes or able to control the board under section 119.11, the company must record the new information within 30 days after becoming aware of it (section 119.31). It must also notify an individual within 10 days after recording that they have become, or ceased to be, a significant individual (section 119.41).

If the company is a registered owner of land in BC, check whether the change also triggers a new land owner transparency report. That regime uses a lower 10% threshold to identify corporate interest holders and generally requires a new report within 2 months after the company becomes aware of the change.

Gifts and family transfers: the tax point

Transfers between family members, or to a holding company you control, are often for little or no payment. Section 69 of the federal Income Tax Act generally treats a person who disposes of property by gift, or to a non-arm's length person for less than fair market value, as having received fair market value. A buyer who pays a non-arm's length seller more than fair market value is treated as acquiring at fair market value. The recipient of a gift is generally treated as acquiring the property at fair market value.

The result can be a capital gain for the person giving the shares even though no money changed hands. Other rules may change the outcome in particular situations, so talk to your accountant about valuation and tax before the documents are signed. If the transfer is part of estate planning, see also what happens to company shares when an owner dies.

A short checklist

• Read the articles and any shareholders' agreement for restrictions and consents.
• Get tax and valuation advice, especially for a gift or family transfer.
• Sign the agreement and transfer, and deliver the certificate.
• Pass the required resolutions and record the transfer in the central securities register.
• Cancel the old certificate and issue a new one, or send the uncertificated share notice.
• Update the transparency register, and check land owner transparency obligations.
• Update the shareholders' agreement if the new shareholder must join it.

Transferring shares? Make sure the paperwork matches the deal

Our business lawyers can review the articles and shareholders' agreement, prepare the transfer documents and resolutions, update the minute book and registers, and work with your accountant on the tax side of a family or holding company transfer.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.