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Stamp Duty and Share Transfers: five key considerations
18 October 2023
ON THIS PAGE
Team: Oisín McLoughlin
Upon the transfer of shares in an Irish company, stamp duty must be paid on the consideration for a sale of shares or the market value in the event of a gift pursuant to the Stamp Duties Consolidation Act 1999 (the 1999 Act ). The obligation to pay stamp duty is on the purchaser of the shares and the standard rate is 1% (see paragraph 3 below). Set out below are five key considerations when dealing with stamp duty in the context of a share transfer.
When does the obligation to pay stamp duty apply?
The purchaser must pay stamp duty when:
- entering into instruments that transfer shares, stocks or marketable securities i.e. a stock transfer form;
- entering into a written option to buy shares;
- entering into a written transfer of existing share options;
- a gift of shares; and
- entering into a written agreement to buy a beneficial interest in shares.
It is possible to obtain an exemption from stamp duty in specific circumstances. A transfer of shares is exempt from stamp duty if the consideration for the shares is less than €1,000 and the instrument is not part of a larger transaction or series of transactions. An exemption of stamp duty also applies on the transfer of shares in the reconstruction or amalgamation of companies or in the case of a merger. Section 79 of the 1999 Act provides a stamp duty exemption for associated companies where shares are transferred between two bodies corporate whose association is so close that the transfer is effectively little more than a change in the nominal ownership of the shares.
In addition, stamp duty is not chargeable in the following circumstances:
- a transfer vesting the property in trustees on the appointment of a new trustee of a pre-existing trust, or on the retirement of a trustee;
- a transfer, where no beneficial interest in the property passes;
- a transfer by way of security for a loan; or a re-transfer to the original transferor on repayment of a loan;
- a transfer to a residuary legatee, a beneficiary under a will of a specific legacy of shares;
- a transfer of shares, etc., being the property of a person dying intestate, to the persons or person entitled thereto;
- a transfer to a beneficiary under a settlement on distribution of the trust funds, of shares, etc;
- a transfer by the liquidator of a company of shares, etc;
- (otherwise than above) a transfer on any occasion, not being a transfer on sale or a transfer chargeable as if it were a transfer on sale.
Stamp duty is payable on the market value of the shares. Stamp duty is applied at a rate of 1% on:
- instruments that transfer shares, stocks or marketable securities;
- written options to buy or sell shares;
- written transfers of existing shares options; and
- written agreements to buy a beneficial interest in shares.
Under certain conditions, stamp duty is payable at a rate of 7.5%. This rate is applied on written agreements or contracts to buy shares where the shares get their value (or the greater part of their value) from immovable property, excluding residential property. The purchase must result in a change in control over the immovable property owned by the target company. The target company must also deal in land or develop land for non-residential purposes.
If the transaction involves a minority shareholder disposing their interest on the open market, a discounted rate of stamp duty may be applied. The below table sets out some of these discounted rates:
It is important to be aware that this discount only applies for capital gains tax purposes. In addition, there is an anti-avoidance measure contained in section 550 of the Tax Consolidation Act, 1997. Under this section, in the event shares are being disposed of in tranches, stamp duty is applied is the greater value apportioned rateably over the separate disposals.
Stamp Duty Returns
Stamp duty is payable to the Revenue Commissioners of Ireland via the online system ROS within 30 days after the instrument transferring the shares is executed, with an additional 14 day grace period. If stamp duty is not paid within the 44 days, a late filing surcharge will be incurred.
Where the stamp duty is paid after 44 days but within 92 days of the date of the execution of the instrument, a surcharge at a rate of 5% of the unpaid stamp duty is applied. This surcharge is capped at €12,695. After the 92 day period, a surcharge at a rate of 10% of the amount of the unpaid stamp duty is applied. This surcharge is capped at €69,485. In addition, interest is also applied at a rate of 0.0219% per day or part of a day where the unpaid duty exceeds €30.
A Personal Public Service Number is required for an individual transferor/transferee and a tax reference number is required where a party is a body corporate.
Finally, in cases where there are multiple transferors, at least one of the transferors is a non-Irish resident and does not have a Personal Public Service Number or a tax reference number and there is one single transferee, not all transferors require tax reference numbers.
If you have any queries in relation to the above, or are looking for more information in relation to stamp duty generally, please contact our corporate team.
 Please note that this table is based on a similar table published by Chartered Accountants Ireland in 'The Valuation of Businesses and Shares: A Practitioner's Perspective' by Des Peelo and Law Society of Ireland Guidance at https://www.lawsociety.ie/gazette/in-depth/to-market-to-market .
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Tá an chuid seo den suíomh idirlín ar fáil i mBéarla amháin i láthair na huaire.
Stamp Duty and shares, stocks and marketable securities
Shares and share options.
- Shares and rates
- Share warrants to bearer
- Companies Capital Duty
Transferring shares, stocks or marketable securities
You may buy or receive a gift of shares, stocks or marketable securities (shares).
You pay Stamp Duty on the stock transfer form which transfers the shares to you. Stamp Duty applies if the shares are in an Irish company.
If the shares are not in an Irish company, you may still have to pay Stamp Duty. For more information, see When is an instrument liable to Stamp Duty .
You may be able to claim an exemption or relief . For example, you do not pay Stamp Duty if:
- the consideration is €1,000 or less
- the instrument is not part of a larger transaction or series of transactions.
This exemption applies to instruments executed on or after 24 December 2008.
David owns 210 shares in XYZ Ltd, an Irish company.
David sells the shares to you in a single transaction for €5,600.
David executes seven stock transfer forms, each of which transfers 30 shares valued at €800 to you.
Although the consideration in each instrument is less than €1,000, each instrument is part of a larger transaction. You must:
• file seven Stamp Duty returns (one for each stock transfer form)
• tick the box on each return stating that the transaction is part of a larger transaction.
You pay Stamp Duty on each stock transfer form.
Special rules apply to shares deriving their value, or the greater part of their value, from immovable property. The immovable property must be non-residential property. These rules are explained in Certain property deriving its value from immovable property .
Shares may be transferred to you through CREST . If they are, Stamp Duty is collected through CREST. You do not file a Stamp Duty return.
Agreements relating to shares
You pay Stamp Duty on written agreements relating to the transfer of a beneficial interest in shares.
John owns shares in XYZ Ltd. His name is on the share register of XYZ Ltd as being the owner of the shares. He agrees to sell the shares to Mary. After the sale Mary does not want her name to be on the share register.
In the share purchase agreement John agrees to hold the shares as Mary's nominee.
Mary must pay Stamp Duty on the agreement.
Stamp Duty on share options
You pay Stamp Duty on:
- written options to buy or sell shares
- written transfers of existing share options.
You may be able to claim an exemption or relief . For example, most option agreements and transfers of existing share option agreements are exempt from Stamp Duty.
Stamp Duty on the issue of shares
You do not pay Stamp Duty on the issue of shares.
Next: Shares and rates
Published: 26 September 2023 Please rate how useful this page was to you Print this page
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Is stamp duty payable on a transfer of an equitable or beneficial interest in shares? What is the stampable document in such a case?
Practical law resource id a-124-9932 (approx. 3 pages).
- Stamp Duty and SDRT
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- Business and industry
Stamp Taxes on Shares Manual
Stsm042230 - exemptions and reliefs: reliefs: stamp duty group relief - transfer of beneficial interest.
For the beneficial interest to be transferred:
- the transferor must be the beneficial owner of the property when the document was executed; and
- the beneficial ownership must pass to the transferee and must be transferred by a duly executed document.
Documents which are not relieved by section 42 include the transfer from a body corporate acting in a trustee capacity (e.g. for a pension scheme). A trustee does not have a beneficial interest in the property.
Where a transfer between associated bodies corporate is in conformity with an earlier contract, the beneficial interest will have passed to the purchaser under the contract. The transfer may still be exempt, however, as it is chargeable on the consideration which was payable under the contract (Escoigne Properties Ltd v IRC  AC 549).
For the purposes of intra-group relief, a company that has entered into an unconditional contract for the sale of property is no longer the beneficial owner of that property (Parway Estates Ltd v IRC  46 TC 435). A conditional contract may have the same effect if the purchaser can waive the conditions (Wood Preservation Ltd v Prior  2 All ER 849), or where the vendor has to waive them to sell the property (Brooklands Selangor Holdings Ltd v IRC  2 All ER 76). The cases seem to follow the general principle that once a contract for sale is executed the property is held in equity by the purchaser. The equitable interest has been held (in Parway, for example) to be equivalent to the beneficial interest. The situation in Scotland is different, for under Scottish Law beneficial ownership remains with the seller until the sale is completed.
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Knowledge Hub for Growth
How the transfer of shares procedure works.
As your business evolves, new investors come on board, and your team grows it’s likely that the transfer of share capital will become a more common occurrence. Although commonly seen across start-ups and high growth businesses, the transfer of shares procedure is fairly complex so seeking support from a specialist corporate solicitor is advisable. Here, we’ll help you learn more about the procedural aspects of the voluntary transfer of share capital in a UK private limited company between two parties, ensuring you fulfil necessary obligations and foresee potential restrictions that could hinder a successful transfer of shares.
COVID 19 update on the stamp duty process
What are the tax implications, are there contractual restrictions on the transfer of shares that you need to be aware of.
The rules governing the transfer of the share capital of a private limited company are set out in the Companies Act 2006 . The Act states that the transfer of shares should take place in accordance with the articles of association of the company whose shares are being transferred.
A transferor can transfer the legal and/or beneficial interest in the shares that it holds. A party holds a legal interest in shares if its interest or ownership in the shares is formally and officially registered by the company whose shares are sold.
By contrast, a beneficial ownership in shares relates to any interest or benefit in the shares that a party may have (on trust or by contract for example), even if it does not legally own the shares and they are held by another party. Usually a transferee will insist upon the entire legal and beneficial interest in the shares being transferred to it so that it has certainty that it holds all the rights to the shares that it is purchasing.
The articles are a publicly available, legally binding contract between the company and the owners of the share capital in the company (‘shareholders’) and are automatically legally binding for all shareholders. The articles are a ‘rulebook’ by which the company is governed and will set out how it should be managed, and shares transferred. Under the Act, the default articles for private companies limited by shares, called ‘model articles’, are articles that will apply to a company if it has not chosen its own bespoke articles or has not amended the default articles. A company’s articles will usually set out at least some of the rights and obligations of owners of the company in relation to the transfer of shares, including:
- Pre-emption rights: These are rights given to existing shareholders of the company in the articles or in a company’s shareholders’ agreement that require a shareholder to first offer the shares being sold to the other existing shareholders or to other specific persons (as stated in the articles or the shareholders’ agreement). Pre-emption rights are fairly common in private companies as they are a way of ensuring that an unknown third party is not brought on board without the existing shareholders having a chance to effectively block them.
- Directors’ right to refuse to register the transfer and make it proper and valid: Depending on the facts and circumstances surrounding the company, the directors may have a discretionary veto right to be able to refuse to register a transfer (the model articles contain such a provision). This right can be limited to particular events or circumstances depending on what is agreed by the company and its shareholders.
- A restriction on the transfer of shares: This provision is often seen in companies that require a long-term commitment to the company or that have a limited number of key shareholders that are important to the business. This provision essentially ‘locks in’ shareholders by restricting their ability to transfer their shareholding for a certain period of time.
In addition to this, a company may also have a shareholders’ agreement in place which is a private legally binding contract between the shareholders (who all voluntarily choose to enter into it, in comparison to the articles which are automatically binding on shareholders) and usually the company. The agreement may set out the rights and obligations of the shareholders in more detail, often including detailed financial obligations and other restrictions on share transfers (such as ‘lock in’ periods discussed above). Unsurprisingly, restrictions on transfers in a private company can be a lot more detailed and far reaching than the restrictions on transfers in publicly listed companies.
The articles can provide that the shareholders and company can either comply with the provisions restricting the transfer or decide to waive them or disapply them. This can be done by the shareholders’ passing a resolution to disapply the provision or agreeing unanimously that the provision should be waived or disapplied. But this is something that the party who is buying the shares should check carefully, otherwise the transfer may not be effective. In practice, it is usual to see provisions restricting transfers to include an option for the existing shareholders to waive the restriction, either because of certain conditions not being met or on a discretionary basis.
What documents are required for the transfer of shares?
To effect a legal transfer of shares in a private company, once any restrictions in the company’s constitutional documents have been addressed, a transferor and transferee will need to make sure that the following documents are drafted and processed as follows:
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What about stamp duty on transfer of shares?
Unless an exception applies, the Finance Act 1999 states that the transfer of shares in a private company will attract what is called ‘stamp duty’, a tax payable to HMRC. In practice, stamp duty is almost always paid by the purchaser of the shares (the transferee). Once stamp duty is paid, the stock transfer form will be stamped by HMRC and then it is ready to be presented to the company for registration.
Stamp duty is payable if:
- The shares are existing shares in a UK company (or a foreign company with a share register in the UK)
- If the transferee held an option to buy shares
- If the transferee has an interest in the shares (such as a claim to part of the consideration for the transferring shares or other rights attaching to the shares)
Stamp duty tax is not payable:
- If the shares are transferred for no consideration (with a value of nil)
- If the shares do not exist and are being newly issued by the company
- If the shares are bought in an ‘open ended investment company’ from the fund manager
- Are part of units in a unit trust and are being bought from the fund manager
The current stamp duty rate is 0.5% of the consideration (value) paid for the shares, rounded up to the nearest multiple of £5. Stamp duty is not payable when the consideration for the transfer is £1,000 or less. If an exemption applies, the stock transfer form will be marked as being exempt from stamp duty and can be presented to the company for registration.
There is a ‘same day’ stamping service available in exceptional circumstances, such as unexpected or unforeseen circumstances where it is essential to have a document stamped immediately and these requests must be emailed to HMRC. The same day service cannot be used if the urgency could have been avoided by either party, or their agents or the law requires a party to apply to HMRC for a decision on how much stamp duty is payable (such as when a tax relief is being claimed). Shares that are transferred electronically will incur ‘stamp duty reserve tax’ which is generally at the rate of 0.5% of the consideration (value) paid for the shares.
If stamp duty is not paid then the stock transfer form will not be stamped. This means that the company whose shares are being transferred cannot register the transfer by law or issue a share certificate, and the directors can refuse to register the transfer. This is a reason why the transferee might want to make sure it has control over the whole process, ensuring that the transferring shares can be formally registered, and the transfer becomes effective.
On 25 March 2020, the UK government announced temporary changes as to how the stamp duty process should be conducted, as a result of precautions being taken due to the COVID-19 pandemic.
HMRC now no longer require stock transfer forms to be posted and physically stamped but an electronic or PDF copy of the stock transfer form should be sent to HMRC by email and payment of the applicable stamp duty should be made electronically (by Faster Payment, BACS or CHAPS – not by cheques as they will not be processed until the temporary measures end).
Signatures on the forms can be electronic signatures. HMRC will then email the transferee a letter confirming receipt of stamp duty, providing reference codes for the transaction, and stating that HMRC will not issue a penalty to the company for registering the transfer in its register of members. There is no timeframe at the moment setting out how long these temporary measures will be in place. The transferee will then be able to send the letter along with the stock transfer form and the transferor’s share certificate to the company for registration.
What are directors’ obligations on registering the transfer of shares?
Once they have been presented with a proper instrument of transfer, the directors of the company responsible for registering the transfer are under a statutory obligation to consider whether to refuse or approve the transfer.
If the directors approve and register the transfer, they can issue a share certificate in favour of the transferee certifying its status as a shareholder of the company. If the directors refuse to register the transfer, they must let the transferee know why they are doing so within two months of the transfer being notified to the company. If they do not do this, the company and each of its directors could be subject to fines.
What is the approval process?
Once a proper instrument of transfer (such as a stock transfer form) that has been executed and stamped has been delivered to the company whose shares are being transferred, the directors will either refuse or approve the registration of the transfer.
The transfer of legal title is only effective once the transfer has been registered in the company’s register of members (a register of all shareholdings in the company) and it is explicitly stated that the transferee is the new owner of all the shares being transferred. The date of transfer will be the date when the transfer is written up in the register and not the date of the transfer itself (i.e. when the consideration was transferred, and the transaction completed).
In accordance with the Act, the directors must provide the transferee with reasons as to why they are refusing to register the transfer. The grounds on which the directors might refuse to register the transfer will be limited to the rights set out in the company’s articles. Ss previously mentioned, the right to refuse to register can be discretionary or limited to specific reasons or triggers, such as if the stock transfer form has not been duly stamped when it needs to be or if the instrument of transfer is not accompanied by the valid current share certificate for the transferring shares. If the directors cannot agree on whether to refuse the transfer, the transferee will be entitled to have the transfer registered.
The directors are still under a duty to the company however and any discretionary powers they exercise should be for the best interests of the company and should promote the success of the company as a whole.
Once the directors have approved the registration of the transfer instrument, they will register the transferee as a new shareholder of the company by adding their name to the company’s register of members as the legal owner of all of the transferring shares.
Within two months of the transfer being lodged for registration, the company must then (unless otherwise stated in the Act) issue a share certificate which evidences the transferee’s legal title to those shares. The transferor may also have a share certificate and as part of the arrangements for the transfer, it is usual for the transferor to be required to send the transferee its share certificate (or to provide an indemnity for a share certificate if it is lost or damaged). This is so that it can be presented to the company along with the application to register the corresponding transferring shares.
Where there is a gap between a stock transfer form or instrument of transfer being given to the transferee and the registration of the transfer by the company, the parties can agree that the transferor will hold the shares on trust for the transferee.
To mitigate the risk that the transferee has a lack of control over its new shareholding, the transferee may grant a power of attorney to the transferor to deal with the shares on its behalf. Alternatively, the share purchase agreement may state that the parties agree that the transferee has a right to exercise the rights attached to the shares prior to registration of the transfer (such as the right to a dividend or the right to vote at meetings).
What needs to be filed following approval of transfer?
Once the transfer has been approved by the directors, registered in the company’s register of members, and the transferor’s name replaced with the transferee’s name as holder of the shares, a private company limited by shares will need to file the update of the transfer at Companies House within two months of the transfer being lodged.
The company will also need to update its register of transfers (a register of the transfers of shares of the company) and its register of persons with significant control (‘PSC register’) or legal entities with significant control (‘RLE register’).
Any changes to the PSC or RLE registers are legally required to be notified to Companies House. A transferee’s unregistered beneficial interest in the shares may cause them to have significant control over the company and so it may be the case that the PSC register is updated before the register of members reflects the transfer of legal title. The PSC register should be updated 14 days after the changes to the PSC register or RLE register are confirmed.
A private company may also opt to include the information on its PSC register in a central register held at Companies House instead of keeping its own register. A failure to update the registers is an offence by the company and its officers. The company will also need to include the updated list of shareholdings to Companies House as part of its next Confirmation Statement.
The tax implications of a share transfer can be significant for both transferee and transferor and will often be carefully considered by the parties and their tax advisors prior to the transfer taking place.
Transferors that are corporate entities may be liable for corporation tax on any UK chargeable gain that arises on the disposal of the shares. Individual transferors may be liable for capital gains tax if they make a profit on the sale of the shares, unless they are eligible for tax reliefs such as entrepreneurs’ relief, gift hold-over relief, or rollover relief.
Transferees that are part of an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) can delay, reduce or eliminate capital gains tax. Enterprise Investment Schemes can delay or reduce applicable capital gains tax if a gain is used to buy unlisted shares in companies approved for EIS. Seed Enterprise Investment Schemes can allow a party to pay no capital gains tax on a gain of up to £100,000 if you use a gain to buy new shares in small early-stage companies approved for SEIS.
It is also important to check whether any income tax becomes chargeable for individual sellers and professional advice should be sought to ensure that the transfer of shares does not detrimentally affect a party’s business or personal affairs.
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- Stamp duty on transfer of shares
According to the Indian Stamp Act, 1899, the Central Government levies stamp duty on the exchange of instruments, where an instrument is defined as any document by which any right or liability is created, or is purported to be created, transferred, limited, extended, extinguished or recorded. Under the Companies Act, 1956, stamp duty is payable when a transfer deed is executed for transfer of shares, which is done using Form 7-B.
Shares are moveable property
Section 44 of the Companies Act, 2013, mentions that shares shall be movable property, transferable in the manner prescribed by the Articles of Association of the company. Shares of public limited companies are freely transferable. A duly executed and stamped transfer deed transfers ownership of shares by delivery of transfer deed along with share certificate.
In this article, the provisions of the Stamp Act, as well as the Companies Act, are analyzed.
Legal framework for levy/payment of stamp duty
Why stamp duty is collected:
The main objective of the Stamp Act, 1899, is to raise revenue for the government. Instruments that are duly stamped as per Schedule-1 are admissible as evidence in a court of law. For this reason, documents stamped appropriately assume significance.
Field of legislation:
Vide 91 of the Union List, the central government is empowered to collect stamp duty on certain instruments namely, bills of exchange, promissory notes, transfer forms for transfer of shares, debentures, bills of lading, proxies, letters of credit, and receipts. State governments do not have the power to enact any laws for payment of stamp duty in respect to these instruments. Each state will prescribe a stamp duty on instruments that fall within its list (State List) and are reflected in Schedule-1A of the Stamp Act.
How stamp duty is calculated:
Identify which category the instrument or document falls under 3 categories:
- Stamp duty remains fixed irrespective of the value of transaction or goods/property mentioned in the instrument. For e.g., article of clerkship, copy of extracts etc.
- Stamp duty charges are entirely dependent on the value of the transaction mentioned in the document. For e.g., mortgage deed, security bond, etc.
- Stamp duty charges depend either on the value of the transaction mentioned in the document or on the true market value. For e.g., trust deed, partnership deed, etc.
Look up the rates provided in the Indian Stamp Act,1899,
Section 21 of the Indian Stamp Act of 1899 states that where an instrument is chargeable with ad valorem duty in respect of any stock or of any marketable or other security, such duty must be calculated on the value of such stock or security according to the average price of the value thereof on the date of instrument. The relevant Article in Schedule-1 is #62 which reads as under:
In the case of a transfer from a trustee to a beneficiary, or from a trustee to another trustee, a concessional stamp duty is payable, unlike in normal transfers. Similarly, when a bank holds shares as security and gets them transferred in its name, a special concessional stamp duty is payable.
How stamp duty is payable:
Non-judicial stamp papers are generally used for execution of legal documents such as sale deed, lease deed, etc. In some cases, adhesive stamps are used; for e.g., notarial acts, share transfer stamps. After the Telgi scam, franking of the value of the stamp on the instrument has come into usage. Having addressed the above basic framework on levy of stamp duty, let us now focus on the topic of stamp duty on transfer of shares.
Legal issues involved in the payment of stamp duty on transfer of shares
Folloing are the points
Who is liable to pay duty on transfer of shares?
Section 29 of the Stamp Act says that in the absence of an agreement to the contrary, the expenses of providing the proper stamp shall be borne, in the case of transfer of shares of an incorporated company, by the persons executing the document.
In the case of transfer of shares of a company, it is the seller who is responsible for payment of stamp duty (Union of India vs. Kulu Valley Transport Ltd. (1958) 28 Comp. case 29).
The transferee is not liable for stamp duty simply because an instrument of transfer of shares is required to be executed both by the transferor and the transferee. (Mrs GR Parry vs. Union of India (1962) 32 Comp. case 145).
Section 17 of the Stamp Act makes it clear that any instrument chargeable with duty should be stamped before the instrument is signed. Thus, it indicates that the transferor has to bear the stamp duty. However, in practice, we notice that it is always the transferee who affixes the share transfer stamps on the instrument at the time of lodging the same for registration of transfer in his favor.
Some companies follow the practice of asking for payment of deficit stamp duty and remove the defect after money is received. Some may defend this action as an investor service. It would be legally correct if a defective transfer deed is returned with a memo.
When is stamp duty payable?
According to Section 17 of the Stamp Act, stamp duty must be paid or stamps should be affixed before or at the time of execution of the transfer deed. Section 108 of the Companies Act, 1956, mentions no company shall register for a transfer of shares unless a proper instrument of transfer, duly stamped and executed by or on behalf of the transferor and the transferee, has been delivered to the company.
What does duly executed mean?
According to Section 2(12) of the Stamp Act, executed means signed. Therefore, execution includes the signatures of all persons who are required to sign the instrument of transfer namely â€” transferor and transferee. To be a called a duly executed transfer deed, besides the signatures of the transferor and transferee on the prescribed form with date of presentation, other requirements such as particulars of the transferee, attestation by witnesses, date of execution, and payment of stamp duty must be complied with.
What does duly stamped mean?
There is no definition of duly stamped in the Companies Act. There are case laws which have clarified the meaning of duly stamped and we are to be guided by such judgments only. When franking was not available, adhesive stamps with the words share transfer were used. If adhesive stamps are used, they must be canceled, otherwise, the instrument will not be considered as a duly stamped and duly executed instrument and a company can refuse to register transfer of shares.
Supreme Court, in the case of Mannalal Khetan vs. Kedar Nath Khetan (AIR 1977 SC 536), considered the issue whether provisions of Section 108 are directory or mandatory. It held that provisions contained in Section 108 are mandatory as Section 629-A of the Act prescribes the penalty and no specific penalty is provided elsewhere in the Act.
Why is cancellation of stamps required?
Section 12 of the Stamp Act requires the person using adhesive stamps to cancel them so that they are not used again. This cancellation has to be done at the time of affixation or execution of the instrument. Although the mode of cancellation is not specified, it is acceptable if the cancellation is done by writing one initials or name on the stamp or by writing canceled the name or initials of across the stamps. Moreover, if such cancellation is not done, the instrument will be deemed to have been unstamped. (Readers may refer to case law Muniamma Vs Arathi Cine Enterprises (P) Ltd).
What does the value of stock or average price of value mean?
In the case of listed companies, it is not a problem as the market value of securities is easily available for determining the payable stamp duty. However, in the case of a private, unlisted companys shares, how will one arrive at the value or average price of shares? This is a grey area. Stamp duty, in these cases, must be calculated on the average price based upon previous transactions available in the records of the company. If such transactions are not available, one has to rely on the fair value of the shares or the actual consideration, whichever is higher.
What will be the recourse if an instrument is under stamped?
In case of doubt, the Collector can be approached who will act as an adjudicator u/s 31 and the charge of under stamping and the issue of an invalid instrument can be averted.
Transfer of shares in electronic form
After the Depositories Act came into existence, the Indian Stamp Act was amended to insert Section 8A. According to this new section, securities issued in an electronic form need not be stamped, provided the issuer pays consolidated stamp duty on the total amount of securities issued. Also, transfer of registered ownership of shares from a person to a depository, or from a depository to a beneficial owner, shall not be liable for any stamp duty. Similarly, transfer of beneficial ownership dealt by Depository shall not be liable for stamp duty under Article 62 of Schedule-1.
Physical transfer of shares has lost significance in this age of electronic transfers through depositories. However, one must remember that it would be very risky if the shares are registered even when the instrument of transfer is not duly stamped. Still, many companies shares are in the physical form although SEBI has mandated them to make them demat. Hence, one cannot ignore the importance of checking and ensuring that proper stamp duty is affixed or franked to avoid being caught for the wrong reasons.
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