1st Issue

Whether Lisa and Mal can prevent the sale of the shares by shareholders to an outsider?
Transfer of shares
 Transfer of shares is a voluntary act of members and it is the method of transferring the
ownership rights of the shares from one person to another.
 The word transfer is an act of the parties by which title to property is transferred from one
person to another. The shareholder has prima facie right to transfer shares when and to
whom he pleases.
 The pre-emptions rights clause provided that a member wishing to transfer should first
offer his shares to other specified person such as directors or other members.
Provisions Relating To Transfer of Shares
SECTION 103 (1)
A company shall not register a transfer of shares or debentures unless a proper instrument of
transfer in the prescribed form has been delivered to the company.
SECTION 104 (1)
On the request in writing of the transferor of any share, debenture or other interest in a company,
the company shall enter in the appropriate register the name of the transferee in the same manner
and subject to the same conditions as if the application for the entry were made by the transferee.
SECTION 105(1)
If a company refuses to register a transfer of any share, debentures or other interests in the
company it shall, within one month after the date on which the transfer was lodged with it, send
to the transferor and to the transferee notice of the refusal.

Cases relating to Transfer of Shares

Kesar Singh v Sepang Omnibus Co Ltd
• Where directors of a company are given by the AOA an absolute and uncontrolled
discretion with regard to registering a transfer of shares the only limitation on the
directors' discretion is that it should be exercised bona fide in the interests of the
company.
Lim Ow Goik & Anor v Sungei Merah Bus Company Ltd
• The AOA of the company provide that the directors may decline to register any transfer
of shares to a person of whom they do not approve and may also decline to register any
transfer of shares in which the company has a lien.
 • The court held although if the directors had simply expressed their opinion it would not
be for the court to examine or to inquire into the ground on which they had formed their
opinion. In this case, the directors had exercised their power for a reason not empowered
by the articles of the company and therefore this was an improper exercise by the
directors of the powers vested in them.

Application to the question

One of the shareholder wants to sell his shares to an outsider. Whether the transfer of the
share is valid or not?
 Lisa and Mal as the directors of Smallco Sdn Bhd has the absolute discretionary power
with regard to a transfer of shares. They should exercise their power bona fide in the
interests of the company. As already stated in the AOA of Smallco Sdn Bhd that the
shares should be offered to the existing members and directors of the company before it
offered to an outsider.
 So, it is invalid transfer if a shareholder of Smallco Sdn Bhd wants to sell the shares
to an outsider.

Lisa and Mal as the directors of the Smallco Sdn Bhd can prevent the sale of shares by the
shareholder to an outsider.
Bowen LJ in Guinness v Land Corporation of Ireland (1882)
‘The articles of association are the internal regulation of the company’
 The clause stated in Table A of Fourth Schedule of Companies Act 1965 bind the
members or the shareholders of the Smallco Sbd Bhd and the shares should not be
transferred to an outsider unless it has first been offered to the members of Smallco Sdn
Bhd.

SECTION 33 (1) Companies Act 1965

the memorandum and articles shall when registered bind the company and the members thereof
to the same extent as if they respectively had been signed and sealed by each member and
contained covenants on the part of each member to observe all the provisions of the
memorandum and of the articles.
Raffles Hotel Ltd v Malaysian Banking Bhd (1966)
MBB was the lessor of the land on which Raffles Hotel was built. It was provided in the hotel’s
AOA that the lessor has a right to appoint a director of the company. MBB appointed itself as
director. The company went to get this appointment declared invalid. The court held that the
appointment was invalid because MBB was not a member and therefore AOA couldn’t constitute
a contract between a company and an outsider.
Application to the question
 The AOA is a regulation only for the members or shareholders in the company and it’s
not for the outsiders who are not a shareholder in the Smallco Sdn Bhd.

 In this case the shareholders as the members of Smallco Sdn Bhd who are legally owns
one or more shares of stock in a company. They should not transferred the shares to an
outsider and if they do so, Lisa and Mal can prevent the shareholder from selling the
shares to an outsider according to the clause stated in the AOA.