Introduction

In the world of company ownership, changing hands of shares is a common occurrence. However, not all changes in share ownership happen the same way. In Zimbabwe, two primary mechanisms exist for changing share ownership: share transfer and share transmission. While they may sound similar, these processes are distinct in their legal basis, procedures, and documentation. Understanding the differences is crucial for company directors, shareholders, and legal practitioners to ensure compliance with Zimbabwean company law.

What is Share Transfer?

A share transfer is a voluntary act where a shareholder (the transferor) intentionally passes their shares to another person or entity (the transferee), usually through sale, gift, or exchange. This process is governed by the Companies and Other Business Entities Act (COBE) in Zimbabwe and is commonly used in both private and public companies.

Key features of share transfer:

  • Initiated by the shareholder’s choice, often for reasons like selling shares, gifting to family, or restructuring ownership.
  • Requires a valid share transfer form, a share sale agreement (if applicable), and board approval.
  • The company’s articles of association may impose restrictions, such as pre-emptive rights or director consent.
  • The transfer is recorded in the company’s share register, and new share certificates are issued to the transferee.
  • Taxes such as capital gains tax may apply, and Zimbabwe Revenue Authority (ZIMRA) clearance is often required.

What is Share Transmission?

Share transmission occurs when shares pass to another person by operation of law rather than by the shareholder’s voluntary act. This typically happens due to the death, insolvency, or mental incapacity of a shareholder.

Key features of share transmission:

  • Triggered automatically by legal events such as death, bankruptcy, or incapacity.
  • The legal heirs, executor, or administrator of the deceased’s estate become entitled to the shares.
  • No need for a share transfer form or sale agreement; instead, legal documents like a death certificate, grant of probate, or letters of administration are required.
  • The company’s board must approve the transmission and update the share register accordingly.
  • No capital gains tax is payable on transmission, but estate duty or inheritance tax may apply.

Main Differences Between Share Transfer and Share Transmission

Nature of the Process Share transfer is a voluntary and contractual process, initiated by the shareholder’s decision. Share transmission is involuntary, arising from legal circumstances beyond the shareholder’s control.

Documentation Required For share transfer, a share transfer form, share certificate, and board resolution are essential. For share transmission, legal documents such as a death certificate, probate, or insolvency order are required, along with board approval.

Tax Implications Share transfers may attract capital gains tax and require ZIMRA clearance. Share transmissions generally do not incur capital gains tax but may be subject to estate duty or inheritance tax.

Role of the Company In a share transfer, the company may exercise discretion to approve or reject the transfer based on its articles of association. In share transmission, the company has limited discretion and must recognize the legal successor upon receipt of valid documentation.

Initiating Party A share transfer is initiated by the shareholder, while share transmission is initiated by the legal representative or heir after the shareholder’s death or other qualifying event.

The Share Transfer Process in Zimbabwe

The process begins with a sale or agreement between the transferor and transferee. A share transfer form is completed and signed by both parties. The board of directors reviews and approves the transfer, after which the share register is updated and new share certificates are issued. Capital gains tax clearance from ZIMRA is required before the transfer is finalized.

The Share Transmission Process in Zimbabwe

When a shareholder passes away, the legal heirs or executor present the death certificate and grant of probate or letters of administration to the company. The board verifies the documents and approves the transmission. The share register is updated to reflect the new owner, and share certificates are reissued. No sale or transfer form is needed, as the process is automatic by law.

Practical Considerations for Companies and Shareholders

  • Always review the company’s articles of association to understand any restrictions on share transfers.
  • Keep the share register up to date to avoid disputes over ownership.
  • Seek legal advice when dealing with complex transmissions, such as when multiple heirs are involved.
  • Ensure all tax obligations are met, whether for transfers or transmissions.

Conclusion

Understanding the differences between share transfer and share transmission in Zimbabwe is essential for smooth and compliant changes in company ownership. While share transfer is a voluntary, contractual process, share transmission occurs by law due to events like death or insolvency. Each process has its own legal requirements and documentation, and both must be handled carefully to protect the rights of all parties involved.