Overview of Share Transfer Agreement

What is this document?

A Share Transfer Agreement is an agreement that transfers shares from the vendor, to a purchaser corporation in exchange for shares in the purchaser corporation.

When would I use this document?

A Share Transfer Agreement can be used in conjunction with a share purchase agreement and a subscription agreement, when the payment for the vendor’s shares is made with shares of the purchaser corporation (the ‘consideration shares’). This type of transaction is common in estate planning as part of a “rollover”.

Who Signs this Agreement?

The vendor and purchaser corporation both sign this agreement.

More details about this document

The transfer is essentially an exchange of vendor shares (the ‘transfer shares’) for shares in the purchaser (the ‘consideration shares’).

This can be part of an estate freeze. If so, the agreement will contain clauses stating the intention of the parties to comply with the tax legislation, and providing for a price adjustment mechanism in case the taxing authority later finds that the value attributed to the shares was inaccurate. The agreement would also have clauses giving a power of attorney to the corporation to make all necessary elections to comply with tax laws.

If the transfer is not being done for tax purposes, the clauses dealing with compliance with the tax legislation will be omitted from the agreement.

What are the core elements of this document?

The core elements of a Share Transfer Agreement include: Background, definition of Transfer Shares, definition of Consideration Shares, Date of Transfer, Purchase Price, Payment, Liability, Creditors, Representations and Warranties, and Closing.

A Share Transfer Agreement used in a “rollover” can include Necessary Acts, Tax Elections and Filings, Price Adjustment, Power of Attorney.

Related Documents

  • Shareholders’ Resolution - in privately held companies a resolution of the shareholders approving the transfer of the shares might be required
  • Directors’ Resolution - the share transfer will need to be ratified by the directors of the corporations whose shares are transferred
  • Minute Book - this is where the corporate records are kept. A copy of the share transfer agreement can be kept in the minute book of the corporation(s) that issued the shares transferred under the agreement
  • Subscription Agreement - an agreement for the purchase of shares between a person buying shares and the corporation issuing the shares.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.