Limited company shares can be transferred or sold to other people, just like any other form of property. In this blog, we explain how to do this.
Share transfers , therefore, are very common and may take place for any number of reasons, including:
To legally sell or transfer ownership of shares, a Stock Transfer Form must be completed. There is no need to notify Companies House at the time of any transfer – you simply need to report the changes on the next annual confirmation statement .
However, it is considered best practice to file a confirmation statement as soon as possible after any share transfers. You may also need to notify HMRC if any Stamp Duty is due.
In some companies, the articles of association may stipulate that shares can only be sold and given to current members, company employees, or family members of existing shareholders. The articles may also express the company’s right to buy back any shares when they become available.
If you have a shareholders’ agreement , it may include certain conditions on share transfers, so it is important to check these documents beforehand.
To complete a Stock Transfer Form , you will need to include the following details:
Both the transferor and transferee should be given a copy of the Stock Transfer Form. A share certificate must also be issued to the new shareholder.
The company should retain copies of all Share Transfer Forms and share certificates at its registered office address (or SAIL address, if applicable).
Directors are also responsible for updating certain statutory company registers as soon as possible, including the register of members and the register of People with Significant Control (PSC register).
Stamp Duty is payable when company shares are transferred for more than £1,000. In such instances, the new shareholder must pay Stamp Duty tax to HMRC at a rate of 0.5% of the sale value. There is no Stamp Duty to pay on any share transfers below £1,000, or when shares are transferred as a gift.
Before selling or gifting shares, you must check the articles of association and shareholders’ agreement (if applicable) for any restrictions, such as:
However, shareholders do have the authority to amend the articles and shareholders’ agreement to include, remove, or change restrictions on share transfers. To do so, a special resolution must be passed.
Pre-emption rights are provisions that protect members’ rights and prevent the unfair dilution of their shares. Share dilution happens as a direct result of new shares being issued and purchased by outside investors. Consequently, the existing shareholders’ proportional ownership of the company is reduced, which has a negative impact on their level of control and profit entitlement.
When pre-emption rights are in place, available shares must be offered to existing members first (i.e. before they can be offered to non-members). The percentage of shares offered to each member should be in relation to their current percentage of ownership, thus enabling them to maintain their existing level of shareholdings and prevent the potentially harmful influence of outside investors.
Directors are appointed to make decisions on behalf of and for the benefit of shareholders. Many companies allow their directors to authorise share transfers, whilst others only prescribe this authority to shareholders. It is entirely up to the members of a company to decide which powers are granted to directors.
If a director does not have the power to authorise share transfers, the members must:
There is no need to notify Companies House about share transfers until you file your next Confirmation Statement. Changes to shareholders should be updated at the same time. When Companies House has been notified, the new information will be updated on the public register.
Alternatively, you can update your Confirmation Statement early if you wish to report the changes immediately. This is recommended if you’re setting up a business bank account, applying for a loan, or entering into any other type of contract or agreement with third parties.