Transferring shares from a shareholder in a private limited company is not a simple case of completing and submitting a filing to Companies House. Instead, it is necessary to follow certain defined processes to enable the transfer of shares (which are an asset) from one person to another.
In this article, we’ve laid out a step-by-step guide to transferring shares, applicable to a majority of companies.
8 steps to transferring shares
1. Identify the person who is to receive the shares
The person who is seeking to transfer their shares out will usually need to find someone to sell their shares to. In other words, they need to find a willing buyer.
However, this is not always necessary. Some companies may have pre-emption rights on any transfers of shares in their articles of association or a shareholders’ agreement. If these are in place, a person who is seeking to transfer their shares will first need to offer their shares to the other shareholders, giving them a chance to take up a proportional amount of the shares being sold. This means they may not even need to find a buyer themselves.
Even if pre-emption rights are not included in the articles of association, giving the existing shareholders the option to take the shares will often represent the most stable course of action for the company, rather than selling the shares to an unknown outsider.
2. Agree on a sale price
Once a buyer is identified, the price (also called the “consideration”) for the transfer of shares will need to be agreed upon. That is, the amount the buyer will pay the seller in exchange for the shares. In general terms, there aren’t many rules surrounding how much shares can be sold for. It is primarily for the buyer and the seller to come to an agreement. Indeed, it is often possible to sell the shares for free.
It is also possible for shares to be transferred for something other than money, for example in exchange for the provision of certain services. A consideration that is for something other than money is called a “non-cash consideration”.
Once a seller has been identified and the consideration agreed upon, a share purchase agreement may sometimes be entered into. Whether or not a share purchase agreement is appropriate will often depend on the particulars of the transfer.
3. Complete and execute a stock transfer form
The stock transfer form is a document which includes the key details concerning the transfer of shares, namely:
- The company’s name
- The name of the class of shares being transferred
- The number of shares being transferred
- The name and address of the transferor (seller)
- The name and address of the transferee (buyer)
- The consideration paid (if any) for the shares
Once the stock transfer has been completed, it is signed and dated by the transferor. Where there is still a liability attached to the shares (i.e. they are unpaid or only partly paid), a slightly different stock transfer form will be used, and the buyer will also need to sign and date the form.
If stamp duty does not apply to the transfer of the shares, then the stock transfer form will need to be certified as being exempt from stamp duty on the reverse. Certification is usually carried out by the transferor.
4. Deliver the signed stock transfer form to the company
The executed stock transfer form should then be delivered to the director(s) of the company, for their consideration.
The director(s) will need to decide whether to approve the proposed transfer or not. This might include ensuring certain procedures are followed. For example, if there are pre-emption rights in place, the director(s) would need to arrange for the procedure to be followed or otherwise disapplied. They will also need to ensure that any other restrictions affecting company transfers are either followed or dealt with.
Subject to meeting all the requirements, the transfer will usually then be accepted by the director(s).
5. Pay stamp duty (where applicable)
As mentioned earlier, the payment of stamp duty may be required on certain transfers.
Generally speaking, if the value of the share transfer is going to exceed £1,000, the incoming shareholder will need to pay stamp duty (at a rate of 0.5% of the sale price of the shares) to HMRC.
If stamp duty does apply, the completed stock transfer form should be sent to HMRC with the necessary payment within 30 days. If HMRC is satisfied that the correct amount of stamp duty has been paid, they will issue a letter providing their confirmation.
6. Update the register of members and issue the share certificate(s)
Now that the stock transfer forms have been executed and approved by the director(s), and stamp duty has either been paid or certified exempt from, the transfer may be entered into the company’s register of members.
Entry of the transfer into the register of members is an important step, as this is what gives legal effect to the transfer. The transferee becomes the holder of those shares when their name is entered in the register, and it should be completed as soon as possible.
The seller of the shares should then hand their share certificate to the company for cancelling. The company usually does this by writing ‘CANCELLED’ on the face of all certificates and copies that are outdated.
A share certificate is then issued to the transferee. In general terms, a share certificate includes the following information:
- Basic company information, such as name, number, and registered office address
- Date of the share certificate’s issue
- Certificate number (a unique identifying number for the certificate)
- The shareholder’s name and address
- Number, class, and nominal value of the shares held
- The paid-up status of the shares
The share certificate is executed on behalf of the company, which is usually done either through the signature of two directors, one director and one secretary, or one director and one witness. To comply with section 776 of the Companies Act 2006, the certificate needs to be issued to the shareholder within 2 months.
7. Update the people with significant control
Any time the shareholding position of a company changes, the company needs to consider whether its register of people with significant control (PSCs) has changed.
For example, if the transferee (the recipient) of the transfer now holds more than 25% of the shares issued in the company, the director(s) will usually need to update their register of PSCs to identify them as being a person of significant control. This will need to take place within 14 days of that individual becoming a PSC.
When a shareholder change does shift the company’s PSC position (for example, the new shareholder may now hold 25% of the company’s issued shares), the director(s) should update the company’s PSC register accordingly within 14 days of the change. Companies House, in turn, should be notified within 28 days of the change from the point it become effective.
8. File a confirmation statement
The final step in the general process is to file a confirmation statement with Companies House, informing them of the transfer. It’s not compulsory to do so right after a transfer, but it is considered good practice to ensure the public record is kept up to date. It means that anyone who checks out the public record will see who now holds the shares.
Find out about our Confirmation Statement Service.
So, there you have it
Those were the 8 steps to transferring shares in a private limited company. We hope you have found this article helpful.
If you wish to transfer shares, we can assist you with our Transfer of Shares Service for £69.99 plus VAT. This service includes a stock transfer form, board resolution, and share certificates. We can also prepare and file a confirmation statement to update the Companies House register.
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