When is it beneficial for a shareholder to transfer their shares?
There are various reasons for shareholders within a Private Limited Company (Sdn. Bhd.) to plan or initiate a share transfer either to existing shareholders or to potential new investor, such as:
To raise new capital from potential new investors
As the business grow, the board of directors may suggest to the Company shareholders to raise the capital in order to expand the business further. From this suggestion, the existing shareholders might deem it beneficial for them to either invest more capital injection in the Company or sell off their shares to existing shareholders or new investors who offers a high consideration sum in return.
For shareholders who wishes to step down from being a shareholder within a Company, the consideration sum offered to purchase the shares will be deemed as an income if the price is higher than the value, they initially injected.
For example: The share initially injected by Ali is MYR 10,000 during incorporation stage. After 2 years of business operation, the business has decided to expand and there is an offer from a potential investor by the name Michael to purchase the share with consideration amount of MYR 30,000. After much consideration, Ali has decided to sell and transfer partial of his shares amounting MYR 5,000 to Michael with a consideration sum of MYR 15,000. Michael agreed and the share transfer takes place.
To re-organise the Company structure
Differing from the situation above, when a Company did not manage to achieve its target revenue after a few years of operating, the board of directors and members might deem it necessary to re-organise its structure and rewrite its business plan and goals. In this situation, the board of directors and members might plan to sell off the business or offer merging between two or more corporations to become one corporation. This way, the merged businesses may share their existing clients and secure more potential clients to ensure the corporation generate revenue.
In terms of shareholders, some shareholders might decide to step down from being a shareholder by selling off their shares to the new investor. It might also occur where the existing shareholder within a corporation purchases those shares at a considerable amount, hence making him the biggest shareholder within the merged corporation.
For example: ABCD Sdn. Bhd. has decided to merge with WXYZ Sdn. Bhd. due to the pandemic. Ali, one of the major shareholders in ABCD Sdn. Bhd. has offered Michael, the sole shareholder in WXYZ Sdn. Bhd. to purchase his shares of 1,000 units at MYR 2,000. After consideration and estimating the value of his Company, Michael decided that it is best to sell off his shares fully to Ali while it is still worth it. Michael is not willing to bargain there are another potential investor willing to offer such amount so long as the pandemic is still around.
To attract new investor with specialised skills or fresh ideas
This situation is the combination of scenarios one and two stated above. Normally, a Company that has run for the last 5 years will normally plan to expand their business and at the same time attract new investors to keep the business fresh with new ideas and purpose. The board of directors either plan to restructure or increase capital injection via new investors.
By restructuring, the board of directors might scout potential Companies who are unable to survive during a pandemic hit but has the potential to bloom with the right planning and actions taken. Hence, buying off the Company over and merge it with their Company is the best way to do so.
By planning an increase of capital, the board of directors might suggest:
Take up loan from the bank in order expand the business
Existing shareholders may inject more fund into the Company, and in return, more dividends will be issued once the Company achieve its target
Attract investors with additional skills to improve the Company aim and products
ADVISE: Whatever the reasons of transferring or selling your shares to another investor or stakeholder, do carefully consider the repercussions that could take place.