Circular No. 05-08 (CR)
Sale and Purchase of Property by way of Transfer of Shares

It has come to the attention of the Authority that some practitioners have arranged for their clients to enter into an agreement for sale and purchase of shares in a limited company which holds a property. Under such arrangement, the vendor(s) (being the shareholder(s) of a property holding company) agree(s) to sell and the purchaser(s) agree(s) to buy all the issued share capital of and in that limited company, as a result of which the purchaser(s) effectively acquire(s) the property through the taking over of all the shares of and in that limited company.

Unlike the usual Provisional Agreement for Sale and Purchase, an agreement for the sale and purchase of shares is a complicated legal document. Purchaser(s) may unwittingly take over debts and liabilities of a limited company that are associated with a transfer of the shares and business undertaking of that limited company and such debts and liabilities (which may be present or contingent and may or may not relate to the subject property) may not be easily discovered without conducting a due diligence examination of the accounts and business of that limited company. In the event that the purchaser(s) require(s) financing to complete the purchase, a share transfer may give rise to complications in the financing of the purchase.

If the parties’ interests are to be adequately protected, comprehensive legal documentation is required. It is highly risky and inappropriate for practitioners to arrange for a share transfer without legal advice.

If a practitioner is found to have arranged for a sale and purchase of shares in a property holding company without legal advice and his client suffers loss as a result therefrom, this may give rise to consideration by the Authority as to whether such act would bring disrepute to the profession and affect his standing as a fit and proper person to hold a licence. Consequently, he may be subject to disciplinary action by the Authority and, if the case is serious, his licence may be revoked.

December 2005


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