If you’re the proud owner of a business, functioning from a reputable business address, you may soon find yourself making important decisions with shareholders regarding the transfer of company shares.

Shares Defined

Before we look at how to transfer company shares, let’s define what company shares mean. Shares form part of a company that is limited by shares and are simply a divided-up unit of the value of a company (each share is a specific percentage of the entire business).

Limited companies can issue more shares post incorporation, and its shareholders (members) may transfer or sell their shares to other individuals at any time. Both must adhere to the procedures set out in the in the Companies Act 2006, the articles of association (find out how to get a copy of memorandum and articles of association), and the shareholder’s agreement (if applicable).

How Are Shares Transferred?

The transfer of company shares in a limited company may be exercised from one individual to another in exchange for the following:

• a monetary payment
• a non-monetary consideration such as goods/products, services, knowledge, or writing off debts
• as part of an employee share scheme
• as a gift to a family member

The transfer of company shares after company formation can be processed by completing a Stock Transfer Form. The following details will be required:

• Your company’s name
• Company Registration Number (CRN)
• Quantity and class(es) of shares being transferred
• Existing shareholder (transferor) name and address
• New shareholder (transferee) name and address
• The amount paid for the shares
• If applicable, the details of non-cash payments
• Transferor’s signature
• If applicable, stamp duty liability

You must send a copy of the Stock Transfer Form to HMRC if the transfer’s sale value exceeds £1,000. The transferee will then have to pay Stamp Duty tax of 0.5% of the total sale value.

Once HMRC receives the form, the transfer of company shares must be approved by the company’s board of directors. This can either be agreed at a meeting or through a board resolution. For some companies, current shareholders have to pass a special resolution in order to waive their right to pre-emption on the transfer of shares.

Upon completion of the transfer of company shares, the director(s) must provide a copy of the Stock Transfer Form to both the transferor and transferee. The company should also keep a copy with its statutory records stored at the registered office or SAIL address.

Share certificates have to be provided to the new shareholder as evidence of ownership. Additionally, the statutory register of members has to be updated in a timely manner, recording details of both old and new shareholders in order to reflect the transfer of company shares. If necessary, the register of People with Significant Control (PSC register/person of significant control) must also be updated.

It’s not necessary to immediately contact Companies House upon completion of the transfer of company shares since this can be outlined on your next annual confirmation statement (see confirmation statement at Companies House).

How to Issue Shares Post Company Incorporation

There could be a number of reasons why companies will be required to issue new shares, including:

• bringing in new business partners
• raising capital from external investors for funding purposes
• to pay business debts
• to introduce a bonus scheme for employees
• to gift shares to family members

There are no legal restrictions on the number of shares a private company can issue during or post incorporation, in accordance with the Companies Act 2006. However, some restrictions may be included in the articles of association and shareholders’ agreement. An authorised capital is one of the most common restrictions; it’s essentially a limit on the number of shares that can be issued.

Owners of a shareholding company can form and issue whatever type of shares they like. This can be done during company registration or once your company has been incorporated. Many companies prefer to issue “Ordinary” shares that are of equal value, providing parity on profit and voting rights between members.

Alternatively, a company may wish to issue multiple types (“classes”) and values of shares in order to provide various voting and profit rights for its members.

To issue further company shares post incorporation, the prospective member(s) must make an application to the company. The existing members must waive their right to pre-emption by passing a Special Resolution (if applicable) and adhering to any further provisions as described in the constitution.

Finally, the company must accept the allotment; normally carried out with a board resolution. Once the allotment has been exercised, the directors must provide the following details on the Return of Allotment of Shares (Companies House form SH01):

• company name
• company Registration Number
• date(s) of allotment(s)
• number, class (type), currency, and nominal value of each share
• amount paid or unpaid on shares
• details of non-cash payments, if applicable
• Statement of Capital.
• prescribed particulars (rights) attached to shares
• director’s signature

The company director has the complete responsibility for filing Form SH01 at Companies House (no later than 1 month after the allotment of company shares) in addition to the following:

• providing a share certificate to each new shareholder
• keeping copies of share certificates at the company’s registered office or SAIL address
• updating the statutory register of members
• updating the company’s PSC register (if applicable)
• reporting the changes to Companies House on the next confirmation statement

What Are the Buy-back Options?

It is not uncommon for companies to include buy-back options in their Articles. These often uphold that any directors or employees who hold shares have to transfer their shares back to the company when they leave. This ensures that only those individuals who are directly involved in the business can be shareholders; subsequently, the company always has control of who may be issued with shares.

Unlike the comparatively simple process of the transfer of company shares, buy-backs are a rather complicated affair. Any company who wishes to implement a buy-back, should seek the advice of a legal professional.

Remember...

The rights and powers of directors are listed in the Companies Act 2006 the articles of association, and any service agreement between the company and director. However, company members can alter these rights by passing a resolution.

Company directors might be prohibited from authorising the transfer of company shares without members’ permission. When a director cannot authorise the transfer of company shares, the members have to pass a resolution to permit such authorisation or allow the transfer of company shares on that specific occasion.

Any articles adopted by a private limited company that was formed after 1st October 2009 will allow company directors with a single share class to authorise the allotment of ordinary shares without the approval of existing members. However, this is still at the discretion of members because, under the articles, they have the right to restrict the directors’ powers.

To find out more about how you can transfer company shares, contact our professional and experienced company formations team now for fast, friendly, and expert advice.

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