Understanding the Transfer and Transmission of Shares Under the COBE Act

The transfer and transmission of shares are fundamental aspects of corporate governance, ensuring smooth changes in share ownership while maintaining regulatory compliance. The Companies and Other Business Entities Act (COBE Act) [Chapter 24:31] provides clear guidelines on how shares may be transferred and transmitted in Zimbabwean companies. Understanding these provisions is crucial for shareholders, directors, and legal practitioners.

Share Transfers

Share transfer refers to the voluntary change of ownership from one shareholder to another. The COBE Act outlines the process and requirements in Section 26:

1.??? Execution of Transfer Instrument:

Shares may be transferred through an instrument of transfer in any usual form or another form approved by the company’s directors. The transferor (seller) must execute the instrument of transfer.

2.??? No Transfer Fees

?Companies are prohibited from charging fees for registering any instrument of transfer or other documents affecting share ownership.

3.??? Retention of Transfer Instruments

The company has the right to retain any registered instrument of transfer.

4.??? Registration Requirement

?Until the transferee’s name is entered into the register of members, the transferor remains the legal owner of the shares.

5.??? Directors’ Right to Refuse Registration

?Directors may refuse to register a transfer if they suspect fraud. If registration is denied, the instrument of transfer must be returned to the transferee along with a notice explaining the refusal.

6.??? Electronic Transfer of Shares

?If a company is a registered user of the electronic registry, uncertificated shares may be transferred electronically under the provisions of Section 153 of the COBE Act.

Transmission of Shares

Transmission of shares occurs when shares pass to another person due to circumstances such as the death or insolvency of a shareholder. Sections 27 to 29 of the COBE Act regulate this process:

1.??? Recognition of Transmittee

When title to a share is transmitted due to the death or insolvency of a shareholder, the company may recognize only the transmittee as the new holder of the share.

2.??? Evidence of Entitlement

The transmittee must provide evidence of entitlement as required by the directors. Upon satisfying these requirements, they may:

o?? Elect to become the holder of the shares, or

o?? Transfer the shares to another person.

3.??? Rights of Transmittees

Until shares are transferred, transmittees enjoy the same rights as the original shareholder, except:

o?? They cannot attend or vote at general meetings.

o?? They cannot agree to proposed written resolutions unless they officially become shareholders.

Exercise of Transmittees’ Rights

Section 28 provides guidance on how transmittees can exercise their rights:

1.??? Becoming the Holder of Shares

?The transmittee must notify the company in writing of their wish to be recognized as the new shareholder.

2.??? Transferring Shares to Another Person

If the transmittee wishes to transfer the shares, they must execute an instrument of transfer as though they were the original shareholder.

3.??? Legal Continuity

Any transfer executed by a transmittee is treated as if the original shareholder had made the transfer before their passing or insolvency.

Transmittees Bound by Prior Notices

According to Section 29, if a notice was issued to a shareholder before their passing or insolvency, the transmittee is also bound by the same notice until their name is entered into the register of members.

Conclusion

The COBE Act provides a structured and legally binding framework for the transfer and transmission of shares. Shareholders and company directors must ensure compliance with these provisions to facilitate seamless changes in share ownership while protecting shareholder rights. Understanding these rules helps prevent disputes and ensures the integrity of corporate transactions.