LegalFAQs

Transfer of Membership in a Single Member Company

As a single member company (SMC), the transfer of membership is a procedure that adheres to specific regulations under the Companies Act, 2017. The primary condition is that the company must remain a single member company post-transfer. Below is a detailed explanation of the process and legal requirements for transferring membership of a single member company.

Transfer of Shares

  1. Eligibility for Transfer: The single member of the company may transfer all of his shares to a single person. This ensures that the company’s status as a single member company is maintained. The transfer of shares to more than one person is not permitted unless the company converts to a private company and amends its articles of association accordingly .
  2. Nomination Requirement: The sole member must nominate a person who, in the event of the sole member’s death, will be responsible for managing the affairs of the company. This nominee will act as a trustee until the shares are transferred to the legal heirs as per the succession laws applicable .

Legal Process and Documentation

  1. Amendment of Articles: If the company wishes to change its status from a single member company to a private company (with more than one member), it must pass a special resolution to amend its memorandum and articles of association. This amendment must be registered with the registrar .
  2. Issuance of Share Certificate: Upon the transfer of shares, a share certificate must be issued under the seal of the company and signed by the relevant director(s) .
  3. Record of Transfer: The company must ensure that the terms of the share transfer are recorded in a written memorandum or the minutes of the first directors’ meeting following the transfer. This documentation is crucial for maintaining an accurate and legal record of the transfer .

Responsibilities of the Nominee

In the unfortunate event of the sole member’s death, the nominee is tasked with the following responsibilities:

  1. Transfer to Legal Heirs: The nominee must facilitate the transfer of shares to the legal heirs, which is subject to the Islamic law of inheritance or the respective law for non-Muslim members .
  2. Interim Management: Until the transfer of shares is completed, the nominee manages the company’s affairs to ensure continuity and compliance with legal requirements .

Conclusion

Transferring membership of a single member company is a straightforward process provided all legal requirements are met. The key is to ensure that the company remains a single member entity or properly transitions to a private company if the number of members increases. Proper documentation, adherence to statutory requirements, and clear nomination of a successor are essential elements of a smooth and compliant transfer process.

For more detailed advice tailored to your specific situation, consulting with our team at [email protected] is recommended to navigate the nuances of the Companies Act, 2017 and ensure all legal obligations are satisfactorily fulfilled.

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In Pakistan, a Single Member Company (SMC) is a type of company that is owned and operated by a single individual. According to the Companies Act, 2017, a single member has the right to transfer their membership in the SMC to another person, subject to the provisions and requirements outlined in the company’s articles of association.

As per Rule 8 in  Form S8 titled   ‘REGULATIONS FOR MANAGEMENT OF A SINGLE MEMBER PRIVATE COMPANY LIMITED BY SHARES’ in the Single Member Companies Rules, 2003, a single member may transfer all of his shares to a single person under the authority of an ordinary resolution whereby the company shall remain a single member company as it was before such transfer.

The process of transferring membership in an SMC typically involves the following steps:

  1. Reviewing the articles of association: The articles of association of the company should be consulted to determine if there are any specific provisions regarding the transfer of membership. These provisions may outline the procedure, restrictions, and conditions for transferring membership.
  2. Obtaining consent: The consent of the new member should be obtained, indicating their willingness to accept the membership and fulfill the obligations associated with it.
  3. Documentation: The necessary documentation, such as a transfer deed or instrument of transfer, should be prepared to formalize the transfer of membership. This document typically includes details of the transferor, transferee, and the terms of the transfer.
  4. Board resolution: The board of directors of the SMC may need to pass a resolution approving the transfer of membership and any related changes to the company’s records.
  5. Updated records: Once the transfer is complete, the company’s records should be updated to reflect the change in membership. This may include updating the share register, filing the necessary forms with the relevant authorities, and updating any relevant documents or certificates.

Another related question is whether there can be Conversion of status of private company into a single-member company and vice-versa.This is governed by section 47 of the Companies At 2017 which reads as :

(1) A private company may be converted into a single- member company with prior approval of the Commission in writing by passing a special resolution in this behalf by the private company amending its memorandum and articles of association, in such a manner that they include the provisions relating to a single-member company in the articles and complying with all the requirements as may be specified.

(2) On an application for change in status of a company under sub- section (1), if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.

(3) A copy of the order, confirming the conversion under sub-section (2), duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) A copy of the memorandum and articles of association as altered pursuant to the order under sub- section (2) shall, within fifteen days from the date of the order, be filed by the company with the registrar and he shall register the same and thenceforth the memorandum and articles so filed shall be the memorandum and articles of the newly converted company.

(5) If a company, being a single member company, alters its articles in such a manner that they no longer include the provisions which are required to be included in the articles of a company in order to constitute it a single member company, the company shall—

(a) as on the date of the alteration, cease to be a single member company; and

(b) file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.

(6) If default is made in complying with the provisions of any of the preceding sub-sections, the company, and every officer of the company who is in default, shall be liable to a penalty not exceeding of level 2 on the standard scale.

Josh and Mak International can not only assist you in registering an SMC (Single Member Company in Pakistan) but also help you  ensure compliance with the Single Member Companies Rules 2003 and the Amendments to these Rules 2003 and to guide you through the specific requirements and procedures involved in transferring membership in an SMC.

By The Josh and Mak Team

Josh and Mak International is a distinguished law firm with a rich legacy that sets us apart in the legal profession. With years of experience and expertise, we have earned a reputation as a trusted and reputable name in the field. Our firm is built on the pillars of professionalism, integrity, and an unwavering commitment to providing excellent legal services. We have a profound understanding of the law and its complexities, enabling us to deliver tailored legal solutions to meet the unique needs of each client. As a virtual law firm, we offer affordable, high-quality legal advice delivered with the same dedication and work ethic as traditional firms. Choose Josh and Mak International as your legal partner and gain an unfair strategic advantage over your competitors.

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