An introduction to shares: Transferring shares

Welcome to the third article in our mini-series covering the basics of shares in which we’ll be covering the transfer of shares.

Before reading this article, it might be useful to refer to articles one and two in the series.

As before, the focus in these articles is on UK private companies limited by shares.

Share transfers – the what and the why

A transfer of shares is the process by which an existing shareholder transfers some or all of their shares to another party – this might be another shareholder, or to someone new.

A shareholder may wish to transfer shares for a number of reasons – as part of their departure from the business, in order to raise funds, as part of a corporate restructuring or as a part of succession planning. Other transfers may take place when shares are held in trust – either when there are new/departing trustees, or when shares are being transferred out of a trust to the beneficial owner.

Transferring shares – the procedure

The following details will need to be confirmed in respect of a transfer:

• The name of the shareholder who is transferring their shares (the transferor).
• The number and class of shares to be transferred.
• The name and address of the party receiving the shares (the transferee).
• The price to be paid on the transfer (or if it is a gift).
• The date of the transfer.

Once the transfer details are confirmed, the following steps will need to be undertaken:

• Check whether the articles contain any special provisions and ensure any procedures set out within the articles are followed.
• Ensure that a completed and signed Stock Transfer form has been received by the company.
• Check whether Stamp Duty is payable and ensure that the HMRC Stamp Office notification letter has been received if so (see below).
• The directors should approve the transfer and, for good order, minute the decision.
• The old Share Certificate should be returned to the company for cancellation, or an Indemnity for a Lost Share Certificate should be provided.
• The register of members can then be updated and new share certificates issued.
• Check whether the share transfer impacts the company’s PSC records and make any necessary PSC filings with Companies House.

Stamp Duty

When the consideration paid on a transfer exceeds £1,000, Stamp Duty will be payable. The Stamp Duty payable is calculated at a rate of 0.5% of the consideration, rounded up to the nearest £5.

For example, a share transfer at a consideration of £1,500.00 would incur a Stamp Duty liability of £10 (5% of the consideration is £7.50 – this would be rounded up to the nearest £5).

If Stamp Duty is payable, the signed and completed Stock Transfer form must be submitted to HMRC Stamp Office by email and the stamp duty payable passed to their relevant bank account. The email should also contain the payment reference, in order that the payment can be matched to the Stock Transfer form. Further information on paying stamp duty can be found here.

Once processed, HMRC Stamp Office then issue a Stamp Duty confirmation letter, which should be stored safely with the Stock Transfer form in the company’s statutory records. The company’s register of members should not be updated until the HMRC letter has been received.

Stock Transfer forms and Stamp Duty payments must be submitted to HMRC Stamp Office within 30 days of the date of the transfer, or a late submission penalty may apply.

Companies House filings

Companies House do not hold ‘live’ shareholder records – so a share transfer does not necessitate any Companies House filings unless the PSC records require updating. Stock Transfer forms do not need to be filed with Companies House.

Usually, the transfer details would be shown on the next Confirmation Statement CS01 when it falls due. The directors could arrange for an early Confirmation Statement to be filed if they wish for the new shareholder details to be reflected more urgently.

Special Considerations when transferring shares

A share transfer must take place in accordance with any special provisions contained within the company’s Articles of Association. Sometimes there will be restrictions or set procedures in respect of transfers. For example, some companies may require a departing shareholder to offer their shares to existing shareholders first.

Articles of Association often give directors the right to refuse to register a transfer, so it is important to make sure that all the necessary steps are taken when transferring shares (or indeed when refusing to register a transfer).

When transferring shares which are unpaid or partly paid, the transferee will need to counter-sign the Stock Transfer form. In such cases, a J10 Stock Transfer form should be used.

Transmissions of shares

When a shareholder passes away, their shares will need to be transferred to their beneficiary(ies).

In such cases, the Executor will need to provide a copy of the Grant of Probate in addition to the usual share transfer documents.

If shares are held jointly, they pass automatically to the surviving joint shareholder(s).

How Gerald Edelman can help

Whilst we hope that this article provides a useful summary of share transfers, we know that every company is different. If you wish to discuss the shares in your company, please contact our team today.

The next article in this series covers other share changes. Read it here: Alterations of share capital