Case Study: Determining The Value Of Shares During A Transfer Of Shares Scenario

When shares are transferred from one party to another, how does the company value the shares (for stamp duty purposes)?  Is it:

a: A fixed value as stated in the transfer form; or

b: Other considerations need to be taken into account in determining the actual value of shares of the date of transfer?

Let us look at the case of Pemungut Duti Setem, Pulau Pinang v Malaysia Smelting Corp Sdn Bhd for an answer. 

Brief facts of the case

A private limited company conducted an open tender exercise for the sale of its entire paid-up capital (RM97,232,142.00/ 72,232,142 ordinary shares of RM1.00 each). Malaysia Smelting submitted a tender to purchase at the price of RM15,000,000.00, which was duly accepted by the company.

Malaysia Smelting then duly proceeded with submitting the share transfer form (‘Form 32A’) to Pemungut Duti Setem/ Deputy Collector of Stamp Duty for adjudication. What happens below became the contention of all parties involved (all the way to the Federal Court), whereby:

1. The deputy collector contended that the duty payable on the Form 32A was RM291,699 based on the total share value of RM97,232,142,00; while
2. Malaysia Smelting contended that the duty payable should be RM45,000 based on the consideration of RM15,000,000.00. 

The court’s decision

The high court noted that the par value of RM1 per share was the actual value for the company’s shares at the date of the transfer and that therefore, the duty chargeable on Form 32A would be RM291,699 based on the total share value of RM97,232,142.

The court of appeal held otherwise. In coming to its decision, the court noted that:

1. The par value of RM1 per share (or RM97,232,142 for the entire paid-up capital) of the company was not the actual value of the company’s shares at the date of the transfer;
2. Evidence of value of the company’s shares at the date of the transfer was the purchase price of RM15,000,000.00 and therefore, the duty chargeable at the date of the transfer for the consideration of RM15,000,000.00 should be RM45,000.00. 

On appeal to the federal court, the court upholds the decision of the court of appeal. 

The court’s rationale

1. The par value of RM1 as stated in Form 32A is not indicative of the actual value of the shares for the purpose of ascertaining stamp duty. Form 32A does not state that the value of the share is RM1 per share. The phrase ‘Ordinary Shares of RM1.00 each’ appears in the column entitled ‘Description of Securities’ in the said Form 32A and this is only a description of the shares. The words ‘Ordinary Shares of RM1.00 each is the usual form of describing shares and the ‘RM1.00’ refers to the par value of the shares.
2. The guidelines on the stamping of share transfer instruments for shares which are not quoted on the Kuala Lumpur Stock Exchange (‘KLSE’) compares not just the par value with the price but also takes into account the net tangible asset, which is a value that does not appear in the share transfer form at all. 
3. The par value is not the actual value of the shares at the date of the transfer for the reason that par value is only a face value while the value of the company waxes and wanes, amongst other things, according to its performance and outlook. The par value may represent the actual value or true value of the shares on the date the shares were first issued (provided that the shares were not issued at a premium) but once the company starts carrying on business, the par value would no longer reflect the actual value of the shares as the company may have made profits or incurred losses or the assets of the company may have appreciated or depreciated. 
4. Therefore, whatever was paid will be considered the actual value- given the fact that that was the value valued by both parties before transferring the shares. 

In conclusion, the value is not fixed as stated in the transfer form- while considerations need to be taken into account (as mentioned above) in determining the actual value of shares for stamp duty purposes at the date of the transfer, the true value will be determine by the monies that are paid upon the transfer of the shares. 

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