A Share Transfer Agreement, sometimes termed a share purchase agreement, is the contract setting out the terms for when shares in a corporation pass from a vendor to a purchaser. While a simple share transfer form may be fine to use among family members or closely associated business partners, the use of a fuller agreement is advisable wherever material value, risk, or continuing obligations exist.  A valid transfer of shares in a private corporation requires compliance with the restrictions in the corporation’s articles, by-laws, and shareholders’ agreements; proper board authorization; and corresponding amendment of the corporation’s securities register.

What does a Share Transfer Agreement typically include?

A complete and accurate Share Transfer Agreement typically includes:

• the identity of the parties
• the shares transferred
• the purchase price or other consideration
• representations and warranties respecting the corporation’s financial condition and compliance with law
• the conditions precedent to closing
• indemnities allocating responsibility

What is involved in the preliminary review?

Before negotiating a Share Transfer Agreement, the parties should review the corporation’s articles of incorporation and by-laws, which may impose transfer restrictions, pre-emptive rights, or a requirement of director approval. They should also review the shareholders’ agreement, which frequently contains a right of first refusal, a shotgun clause, or a prescribed valuation formula. The Ontario Business Corporations Act (OBCA) and the Canadian Business Corporations Act (CBCA), further require the corporation to maintain a securities register and give the board authority to approve, or decline to record, certain transfers, particularly in the case of a private corporation.

What are the tax considerations?

Share transfers, including transfers between related parties or for no cash consideration, may give rise to tax consequences, including potential capital gains. Parties should obtain tax advice prior to completing the transfer, particularly when it involved a family business or a transfer occurring due to a death. For more information, refer to Tax implications of transferring shares.

Closing procedure to approve transfer

Upon execution of the agreement and satisfaction of the closing conditions, the corporation’s directors ordinarily pass a resolution approving the transfer, the existing share certificates are cancelled, new certificates are issued, and the securities register is updated. Where required, a notice of change is filed with the Ontario Business Registry.

Illustration

An investor agrees to purchase thirty per cent of the shares of a private Ontario technology corporation. As the shareholders’ agreement confers a right of first refusal upon the other shareholders, the vendor must first offer the shares to them on identical terms before the share transfer agreement with the investor may be executed and closed.

Getting the legal help you need

Transferring shares can have important implications for ownership, corporate control, and tax obligations. Make sure your transaction is properly documented with a Transfer of Shares document from Legal Line Documents. Create your document quickly and affordably—it only takes a few minutes to get started.

								
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