Share Transfers in Joint Stock Companies

The principle: shares are freely transferable

Article 127 of the Law on Enterprises 2020 provides that shares are freely transferable, except where the law or the company charter imposes restrictions. This is the fundamental difference from LLCs (where Article 52 mandates offering to remaining members first).

The practical meaning: a shareholder wanting to exit need not ask other shareholders’ opinions nor make an internal offer — just find a buyer and carry out the transfer. However, the “except where” in Article 127 is where most trouble arises: restrictions under law and under the charter.

Statutory restrictions: founding shareholders in the first 03 years

Clause 3, Article 120 of the Law on Enterprises 2020 sets the most important restriction: within 03 years from the date the company is granted its enterprise registration certificate, founding shareholders may freely transfer their shares to other founding shareholders; but may transfer ordinary shares to a person not a founding shareholder only with the approval of the General Meeting of Shareholders. The intending transferor has no voting right on this transfer.

Points to note:

• Scope: this restriction applies to ordinary shares of founding shareholders. Non-founding shareholders (who bought shares after establishment) are not subject.
• The 03-year mark: counted from the enterprise registration certificate issuance date. After 03 years, the restriction lapses automatically — founding shareholders transfer freely like ordinary shareholders.
• Approval procedure: convene a General Meeting of Shareholders (or collect written opinions) for approval; the transferor may not vote. “Working around” by transferring first and regularizing later risks the transaction being challenged.
• Can the charter provide otherwise?: the charter may not relax this statutory restriction, but may tighten it (e.g., extending the restriction period). Read each company’s charter carefully.

Charter-based restrictions

Joint stock company charters often add transfer restrictions to protect the ownership structure, for example:

• Restrictions on share transfers by Board of Directors members and the General Director during tenure;
• Pre-emptive rights of existing shareholders when a shareholder wishes to transfer (not mandated by law, but the charter may impose them);
• Restrictions on transferring preference shares (voting preference shares of founding shareholders are non-transferable, except statutory cases);
• Conditions on transferee qualifications (e.g., in companies with foreign elements, foreign ownership ratio limits under investment commitments).

Before each transaction, the first thing is to read the company’s current charter — many deals stall because parties read only the law and forget the charter.

Public companies: an extra layer of Securities Law

For public companies, share transfers are also governed by the Securities Law 2019, most notably the public tender offer rules in Article 35: organizations and individuals intending to own 25% or more of a public company’s voting shares (and subsequent statutory thresholds) must conduct a public tender offer under securities law procedures.

The key distinction: public tender offer rules apply only to public companies, not to ordinary (non-public) joint stock companies. Many investors buying shares in private joint stock companies wrongly worry about tender offer obligations — for non-public companies, this obligation does not exist.

In addition, share transactions of listed/registered-trading companies must go through the Stock Exchange’s system as prescribed, not “hand-to-hand” outside the system.

Share transfer procedures: the steps

• Step 1 — Review conditions: check the transferor’s status (a founding shareholder in the first 03 years?), charter restrictions, whether shares are fully paid (shareholders may not transfer purchase rights for unpaid shares — point b, Clause 3, Article 113).
• Step 2 — Internal approval (if needed): if GMS approval is required (founding shareholder transferring to outsiders in the first 03 years) or the charter requires it, obtain approval before signing the contract.
• Step 3 — Sign the transfer contract: a written contract stating the number and type of shares, transfer price, payment method and deadline, and ownership transfer timing.
• Step 4 — Payment and handover: make payment; for certificated shares, hand over the share certificates.
• Step 5 — Update the shareholder register: the company updates the new owner’s information in the shareholder register. This is the basis for determining the transferee’s shareholder status vis-à-vis the company.
• Step 6 — Tax obligations: individual share transferors owe personal income tax on securities transfers under tax law; the parties should agree clearly in the contract who bears the tax.

Common risks and how to prevent them

• Transferring founding shareholders’ shares in the first 03 years without GMS approval: the transaction risks being declared void when challenged. Prevent by completing the approval procedure before signing.
• Not updating the shareholder register: the buyer paid but is not recorded as a shareholder, unable to exercise voting rights or receive dividends. The company must update promptly; the buyer should make this a contractual term.
• Price disputes: in internal transfers (family, founding groups), transfer prices are often below market — note tax obligations and the risk of being deemed an unfair transaction when shareholder disputes arise.
• Ignoring foreign ownership limits: with companies having foreign investors, check foreign ownership ratio commitments in conditional business lines before transferring to foreign investors.

How does FLAT LAW FIRM help?

We advise on structuring share transfer transactions; review the charter and the legal status of shares to be transferred; draft transfer contracts and GMS approval resolutions (if needed); and support updating the shareholder register and business registration. For deals with foreign elements or involving public companies, we coordinate advice on securities and investment aspects. See also our corporate legal compliance services.

Frequently asked questions

Useful links

You should talk to a lawyer if:

• Preparing to buy or sell shares, especially when the seller is a founding shareholder in the first 03 years.
• The company charter has transfer restriction clauses needing interpretation.
• The transaction involves a public company or foreign investors.
• The shareholder register has not been updated after prior transfers.
• Disputes arise over the validity of completed transfer transactions.