Legal Updates

Transfer of shares without consideration may be deemed a transfer in trust for the real beneficiary of the shares

November 11, 2021

A shareholder in a company transferred his shares to his girlfriend but later contended that the purpose of the transfer was to hold the shares in trust for him, although no trust agreement was executed.

The Court held that the transfer of the shares was made as part of trust arrangement so that the girlfriend would fulfill the his will and testament, and that she had no proprietary rights in the shares. For the purpose of drafting a gift agreement, a high degree of intent is required on the part of the grantor (the desire of the grantor to enter into an agreement), as this is a one-sided agreement. Although signing a document may indicate the existence of intent, in cases where the gift agreement is not unequivocal, it is necessary to show additional objective representations on the part of the grantor. Where it is clear that the agreement is not a gift agreement, it is presumed that the transfer of the asset from one to another is made in trust so that the grantee will hold the asset for the grantor only in order to fulfill the grantor’s will. Here, although the share deed was signed by the shareholder, it expressly stipulated that it is given for consideration, and therefore it is clear that the shares were not transferred to her as a gift. Thus, the shares are held in trust and the girlfriend has no proprietary rights in the shares.