Transfer of Shares in a Private Company in Bangladesh

The transfer of shares in a private company in Bangladesh is governed by a combination of statutory and regulatory instruments. Chief among these are the Companies Act, 1994 (hereinafter “the Act”), the relevant circulars and guidelines issued by the Registrar of Joint Stock Companies and Firms (RJSC), and the internal corporate documents of the company, particularly the Articles of Association (AOA). The key statutory provisions governing share transfers are Section 38 and Section 39 of the Act, which prescribe the mandatory steps and formalities to make any transfer of shares lawful and valid.

According to these provisions, no transfer of shares is legally effective unless: (1) an instrument of transfer, duly stamped and signed by both the transferor and transferee along with the original share scrip, is delivered to the company (2) the Board of Directors approves the transfer; and (3) the company registers the transfer by entering the name of the transferee into its share register and omitting the name of the transferor.

Step One: Due Diligence and Review of Company Documents

Before initiating the share transfer process, the prospective transferee should conduct legal due diligence to assess whether there are any contractual or corporate restrictions on the transfer of shares. Most Articles of Association of private companies impose pre-emption rights, which require an existing shareholder to first offer his or her shares to other current shareholders before transferring to an outsider. These rights are designed to preserve the closed nature of a private company.

Such restrictions may also be found in Shareholders’ Agreements, and in practice, it is common for the company to require a No Objection Certificate (NOC) from other shareholders or stakeholders. In some cases, especially where the company has existing loans, clearance from lending banks may also be necessary, in line with Section 27A of the Banking Companies Act, 1991. In addition, the transferee should verify the valuation of shares, which are often sold at a premium above face value, and compare it against the company’s audited financials.

Step Two: Corporate Approvals and Internal Resolution

Once due diligence is complete, the shareholder intending to transfer their shares must serve a written notice to the Board of Directors disclosing their intent. As per Section 38(7) of the Act, the Board retains absolute discretion to approve or deny the share transfer request.

The Board typically convenes a board meeting or an extraordinary general meeting (EGM) to consider the request. If the transfer is approved, the Board passes a formal resolution and may also issue a NOC, confirming that any pre-emption rights have been duly discharged. This resolution serves as the internal legal basis for proceeding with the transfer.

Step Three: Payment of Share Price

Upon approval of the transfer by the Board, the purchaser/transferee must make the agreed payment for the shares. For domestic transactions between Bangladeshi nationals or entities, no formal proof of payment is usually required.

However, where the transferee is a foreign national, foreign entity, or Non-Resident Bangladeshi (NRB), the transaction must comply with Bangladesh Bank regulations. In such cases, the RJSC mandates submission of an Encashment Certificate issued by a scheduled bank in Bangladesh, evidencing that the funds have been remitted properly and received by the company.

Additionally, under the amended Section 38(3)(b) of the Act, if the transferee is a foreign person or NRB, all transfer documents and supporting affidavits must be consularised. This involves certification by a Bangladesh Embassy or High Commission, counter-verification by the Ministry of Foreign Affairs, and stamping by the Deputy Commissioner’s office to authenticate foreign-origin documents.

Step Four: Execution of Form 117 and Payment of Stamp Duty

Following payment and approval, the parties must complete Form 117, the official Instrument of Transfer of Shares, which must be executed in person before the Registrar at the RJSC office, in accordance with the newly amended Section 38(3)(a) of the Act. The transferor’s physical presence is mandatory, and although the law envisages remote commissioning options for those unable to appear, such mechanisms have not yet been operationalised.

The RJSC requires submission of supporting documents, including the company’s latest audited financials, list of directors, and shareholder affidavits. At this stage, stamp duty at the rate of 1.5% of the face value of the shares must be paid. Once Form 117 is duly signed and stamped, a copy must be submitted to the company, serving as formal notice of the completed transfer.

Step Five: Amendment of Company Register and Issuance of Share Certificate

After the share transfer instrument is received by the company, the final step involves the update of the statutory registers. The company must amend its:

• Share Register
• Share Transfer Register
• Minutes Register

to reflect the entry of the new shareholder and deletion of the old one. A new share certificate should be issued in favor of the transferee, or the existing certificate should be amended to reflect the changes. This ensures that the transfer is complete both legally and procedurally under the Companies Act and company law best practices.

Commonly Required Documents

• Form 117, duly filled and signed in the presence of RJSC
• Affidavit by the transferor/seller attesting to the legitimacy of the transfer
• Board Resolution passed in an EGM approving the share transfer
• Certificate of Transfer of Shares, signed and sealed by the company
• No Objection Certificates (NOCs) from shareholders or creditors, where required
• Letter of Resignation (if the transferor is also a director stepping down)
• Letter of Authorization (if representation is made by counsel or proxy)

In Case of Disputes

Where there is a dispute concerning the validity of a share transfer, such as fraud, coercion, misrepresentation, or error, the aggrieved party may apply to the High Court Division of the Supreme Court under Section 43 of the Companies Act, 1994. The remedy sought is typically rectification of the share register, and the Court may, upon examining all evidence and circumstances, direct the company to reverse or validate the transfer.

At Kazi Law Chamber, we assist clients in every stage of the share transfer process, from due diligence, board approvals, and RJSC filings to dispute resolution before the Company Court, ensuring compliance, transparency, and shareholder protection.