An investor interested in becoming a shareholder in a Jamaican company may do so by subscribing for newly issued shares in the company or by purchasing existing shares from a current shareholder. The appropriate method will depend on the investor’s commercial objective, intended timeline, and the restrictions outlined in a company’s constitutional documents. The choice will affect tax exposure, the destination of funds, transfer restrictions, pre-emptive rights, and approval requirements. Each of these matters should be assessed before the investor commits to the way forward.

Pre-emptive Rights and Transfer Restrictions

A share transfer is commonly effected through a share purchase agreement, under which the investor and an existing shareholder agree to transfer ownership of a specified number of shares. Consideration paid goes directly to the existing shareholder and not the company. The issued share capital of the company does not change, but the composition of the company’s shareholding changes. The company’s constitutional documents may impose restrictions on the transfer. For example, the company’s Articles of Incorporation or Articles of Association (“the Articles”) may require an existing shareholder transferring his shares to an external party to first offer those shares to the other shareholders. If this restriction exists, only after the existing shareholders exercise, decline, or waive that right should the shares be offered to the external investor. As such, a review of the Articles should be conducted to identify any transfer restrictions that could impact the share purchase.

An allotment is commonly effected through a share subscription agreement, under which the company allots previously unissued shares directly to the investor. This structure involves the investor and the company, and it may also engage pre-emptive rights under the articles. Pre-emptive rights stipulate that no shares or a class of shares may be issued by the company unless those shares have first been offered to the shareholders of the company holding shares of that class. Those shareholders will be able to exercise their pre-emptive right to acquire the offered shares in proportion to their current holdings and on the same terms proposed for the investor. If these pre-emptive rights exist, only after the existing shareholders exercise or waive that right should the shares be offered to the external investor. Where the company’s articles provide for pre-emptive rights in relation to shares, those rights will not apply to shares issued by the company for non-cash consideration.

Tax Considerations

A share transfer incurs transfer tax. Transfer tax is payable at the rate of 2 per cent of the market value of the shares and is borne by the transferor, the existing shareholder in this case. Tax Administration Jamaica (TAJ) will require the instrument of transfer to be submitted with the company’s audited financial statements as the book value is generally used for the assessment of the market value of the shares being transferred. In some instances, TAJ may accept unaudited financials, for example, where the company is a small company pursuant to the Companies Act.

In an allotment of shares, transfer tax is generally not payable because the relevant shares are newly issued rather than transferred by an existing shareholder.

Stamp duty is payable on the transaction documents, whether a share purchase agreement or share subscription agreement. The stamp duty payable is a flat fee and will not exceed $5,000.

Required Approvals

In an allotment, the directors can validly issue new shares only if the company’s issued share capital remains below its maximum authorised share capital, as reflected in the company’s articles. If the issued share capital is already equal to the maximum authorised share capital, then no additional shares can validly be issued until the company’s shareholders pass an ordinary resolution to increase the authorised share capital. This will require documents to be filed both at TAJ and the Companies Office of Jamaica. This requirement can create both an operational and timing hurdle for the transaction.

In a share transfer, the articles of private companies may include a provision which states that no transfer of shares will be registered unless the directors, by resolution, approve it. Directors of private companies are typically given wide discretion to refuse to register any transfer of shares.

Shareholder Disclosure Obligations

After becoming a shareholder, whether under a share purchase agreement or share subscription agreement, the shareholder is required to provide the company with certain information and supporting documentation. This includes a certified copy of a valid government-issued identification document such as a driver’s licence, passport, or national voter’s ID, together with the shareholder’s name, date of birth and nationality, address, occupation, Taxpayer Registration Number (TRN), or other applicable tax identification number. Where the shareholder is itself a company, the required particulars are its name, date of incorporation, registration or establishment, its registered address or the address of principal place of business, and its Taxpayer Registration Number (TRN) or other applicable tax identification number.

Conclusion

An investor acquiring shares in a Jamaican private company should carefully select the method of acquisition and seek legal advice from the outset. Early legal guidance clarifies the legal, tax, and timing implications of each available structure, ensuring the chosen approach aligns with the investor’s commercial objectives and timeline.

Akil Williams is an Associate at Myers, Fletcher and Gordon and a member of the firm’s Commercial Department. He may be contacted at akil.williams@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only
and does not constitute legal advice.

Akil Williams.