15 February 2010
Respected Experts, adulate you all.
Here is an extract of an ARTICLE OF ASSOCIATION of a typical Pvt Co.
" TRANSFER AND TRANSMISSION 26. Save as provided in the Articles or unless all the members for the time being of the Company agree no share shall be transferred or issued to a person who is not a member of the Company so long as a member is willing to purchase the same at a fair value. 29. If the Company shall not within the span of two calendar months after being served with a notice of transfer as aforesaid find a member willing to purchase the shares in the manner aforesaid, the proposing transferor shall, at any time after three calendar months, be at liberty to sell and transfer such shares to any person at any price, provided that the Directors may refuse to register any such share in name of a body corporate. 30. In case any difference arise between the proposing transferor and the purchasing member as to the faire value of the shares, the Auditors of the Company shall fix up the value thereof which shall be deemed to be the fair value."
Now we have many ifs & buts regarding Public cos but in the case of privates its the AOA which decide what shall be the fair value while transferring the shares, which again indeed is in agreement with the Companies act.
Now here the AOA spells that only in case there is disagreement regarding transfer price auditor shall intervene to decide what shall be the "FAIR VALUE".
Thus in all other cases the shareholder are at complete freedom. If so, they may speculate this opportunity for making notional capital gains/losses to suit their ill motives.
Please Clarify whether I am right or not. If Right is this not a Flaw of Companies Act and hence a mockery of law?
Thanks a lot for replying in advance. Hoping submissively for your most valuable replies.
CAclubindia
