Issue or Transfer of shares for limited company

There are lots of work-related, tax, investment, or personal reasons why someone might need to transfer their stake in a business. The beauty of forming a limited company is that business ownership is represented by handy, identifiable units (i.e. shares). There’s also a standard, well-established procedure in place for the transfer of shares, which means less hassle, clear protections for stakeholders, and the ability to shape your company in response to changing circumstances.

The process for the transfer of shares is designed to be straightforward. There are, however, certain important checks and notifications involving Companies House and HMRC that you need to be aware of and follow. Read on for a closer look at transferring ownership of shares, and what you need to do, step-by-step.

Understanding share transfers

A share transfer is where ownership of shares in a limited company is transferred from one person or entity (the transferor) to another (the transferee). The process is governed by UK company law (The Companies Act 2006), tax rules, and also the Articles of Association (i.e. your company’s internal ‘rule book’).

In a nutshell, here’s what the different parties involved (transferor, transferee, and the company) need to do:

• All parties should review the Articles of Association to check for any restrictions that could affect the proposed transfer.
• The transferor completes a stock transfer form and sends this to the transferee.
• The transferee calculates stamp duty payable (if any).
• If stamp duty is payable, the transferee sends the stock transfer form and stamp duty payment to HMRC.
• The transferee submits the transfer form (duly stamped by HMRC where relevant) to the company.
• The company reviews and approves the transfer.
• The company updates its register of members and register of transfers issues a share certificate to the transferee, and cancels the old certificate held by the transferor.
• The company may also need to update its register of persons with significant control, or legal entities with significant control register (PSC or RLE registers), and notify these changes to Companies House.

Required Documentation for Share Transfers

Rather than having reams of separate forms to worry about, the whole process is handled through a single key document: the stock transfer form. Here’s how it works…

Transferor completes the stock transfer form

The transferor obtains and completes the stock transfer form (readily downloadable from the internet). The version required depends on the type of transfer:

• Form J10 if the shares are being transferred for no payment or part-payment (e.g. gifted or inherited).
• Form J30 if the shares are being paid for in full.

The stock transfer form requires you to provide self-explanatory information; principally, details of the company, transferee and transferor, volume and category of shares being transferred, amount paid, date of transfer, and stamp duty liability (see below).

Transferee complies with stamp duty obligations

Stamp duty is a transaction tax, paid by the transferee, and calculated based on the amount paid for the shares as part of the transfer.

If the amount to be paid for the shares is £1,000 or less, no stamp duty is payable. Under these circumstances, the transferee self-certifies the stock transfer form, indicating the reasons why no stamp duty is due. The transferee then sends the stock transfer form directly to the company.

If the amount paid is more than £1,000, the transferee needs to calculate the amount of stamp duty due, which is 0.5% of the amount paid (referred to as the ‘consideration’). The transfer then sends the completed form together with the stamp duty payment to HMRC.

After a week or two, the transferee should get the stock transfer form back from HMRC, ‘duly stamped’. The transferee then submits the stamped form to the company.

How to Change Shares on Companies House

Here’s what the company must do to update its records and (where relevant) notify Companies House in connection with a share transfer…

Internal records

Following the transaction, the company must update its register of members (essentially a record of all shareholders and what they hold). This includes details of the volume and category of shares transferred, the date of transfer, and, in the case of new shareholders, identities and addresses.

Share certificate

Within two months of the date of transfer, a new share certificate must be issued by the company to the transferee. The old certificate held by the transferor must be canceled.

Companies House notification

If the transaction means that a new individual will hold more than 25% of the company’s shares and/or voting rights, the company will need to update its PSC (persons of significant control) register. This needs to be done within 14 days of the transfer and notified to Companies House within a further 14 days.

Likewise, if the share transfer results in a change in the company’s share capital, this also needs to be reported to Companies House.

When you file your confirmation statement (formerly known as an annual return), this should also include up-to-date information on shareholders and shareholdings.

Rules and Regulations for Transferring Shares

We’ve touched on the reporting and record-keeping obligations of the company when it comes to share transfers.

On top of this, the company and its members all need to be aware of their general duty (set out under s33 of The Companies Act 2006) to act in accordance with the company’s articles of association.

Typically, as a company owner, you’ll want a right of first refusal (‘pre-emption’) on any shares up for transfer or sale. You won’t want shares passing into the hands of a competitor, or perhaps outside of your family or beyond your workforce. Suitably drafted articles of association should reflect all of this.

Transferors and transferees should check the articles of association before the transfer is commenced to check that what’s proposed actually adheres to the company’s rules.

Common Scenarios for Share Transfers

Why do people transfer shares? Here are some common reasons…

• An existing shareholder wants to retire or leave.
• You want to bring on board a new investor.
• You want to transfer shares as a perk of employment/directorship.
• A shareholder wants to transfer shares for tax or family reasons.
• A shareholder has died, and shares need to be transferred to a beneficiary/heir, or to remaining shareholders.

Share Transfer Fees and Valuation

How do you know how much each share is worth for a paid share transfer? The standard way is to appoint an independent valuer (usually a chartered accountant who specialises in corporate finance). For this, the company’s articles of association will often specify how a valuer should be appointed, the basis of valuation, and the responsibility for valuation fees in the event of a transfer.

In terms of costs overall, as a transferee, you’re looking at stamp duty (see above), any administrative fee the company may charge for processing the transfer, plus your share of any valuation costs.

FAQs

How do I transfer a share at Companies House?

Share transfers are not handled through Companies House. However, when you file your annual confirmation statement, changes to your company’s shareholders and shareholdings that stem from share transfers should be included in that updated statement.

Also, if a share transfer triggers a change to your persons of significant control register (e.g. a new individual now has a 25% or more stake in the company), Companies House has to be informed within 14 days of the PSC register being altered.

Can you transfer company shares to another person?

Yes - but companies have rules in place to prevent shares from being transferred to all and sundry. You can only do it if the transaction is permitted under the articles of association of the company in question.

What are the rules for the transfer of shares?

In the case of a private limited company, the transfer must adhere to the company’s articles of association. It must be initiated via a stock transfer form. The transferee must account for any stamp duty due. And the company must ensure that it is recorded correctly and that all relevant notifications are made to Companies House.

How do I transfer shares between two companies?

A company-to-company share transfer is broadly the same as a transfer to an individual; i.e. a requirement to use the standard stock transfer form, and account for stamp duty. The parties involved must ensure that the proposed transfer is consistent with the rules of both companies. Also, it’s almost certainly going to be the case that you need to amend your RLE (relevant legal entity) register rather than your PSC register - and notify Companies House accordingly.

Why Choose Mint Formations for Share Transfers

Need to bring on board a new shareholder? Want to structure or restructure your company in such a way as to make share transfers as simple as possible? Mint Formations can help. Trusted by more than 10,000 companies and with 20+ years of experience in UK company formation, we can deliver on-demand expert assistance for all aspects of share transfers.

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