How to Guide: Issue and Transfer of Shares
Shares are “portions” 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). If you’re a business owner who has just completed your limited company formation, you’ll soon be making important decisions regarding the allocation of your company shares, including the issue and transfer of shares.
Limited companies can not only issue more shares post incorporation, but 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).
Transfer of Shares Explained
In a limited company, the transfer of shares can 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 shares after company formation can be processed by completing a Stock Transfer Form where you’ll be required to provide the following details:
- 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
HMRC must receive a copy of the Stock Transfer Form if the sale value of the transfer exceeds £1,000. The transferee will have to pay Stamp Duty tax of 0.5% of the total sale value.
The journey of the transfer of shares is not done just yet. After HMRC receives the form, the transfer of shares has to be approved by the board of directors. This can either be agreed at a meeting or through a board resolution. In the case of some companies, existing shareholders may need to pass a special resolution in order to waive their right to pre-emption on the transfer of shares.
Once the transfer of shares is complete, the director(s) have to 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.
As proof of ownership, the new shareholder must be issued with share certificates. Subsequently, the statutory register of members must be updated promptly to reflect the transfer of shares, recording details of both old and new shareholders. If necessary, the register of People with Significant Control (PSC register/person of significant control) will also need to be updated.
It’s not necessary to immediately contact Companies House when a transfer of shares is completed, as this can be disclosed on your next annual confirmation statement (see confirmation statement at Companies House).
Issuing Shares After Company Incorporation
There could be many 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, if needed, 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 additional company shares after incorporation, the prospective member(s) have to make an application to the company. The current members should 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 allotment has to be accepted by the company; normally carried out with a board resolution. Once the allotment has been exercised, the directors have to 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 responsibility for filing Form SH01 at Companies House (no later than 1 month after the allotment of company shares) falls to the company director. They must also:
- provide a share certificate to each new shareholder
- keep copies of share certificates at the company’s registered office or SAIL address
- update the statutory register of members
- update the company’s PSC register (if applicable)
- report the changes to Companies House on the next confirmation statement
When it comes to issuing and transfer of shares, the rights and powers of directors are outlined in the Companies Act 2006, the articles of association, and any service agreement between the company and director. However, members are entitled to change these rights at any time by passing a resolution.
For the transfer of shares, directors may be prohibited from authorising transfers without the permission of current members. When a director is powerless to authorise the transfer of shares, the members must pass a resolution to either allow for such authorisation or permit the transfer of shares on that occasion.
The articles adopted by any private limited company formed after 1st October 2009 allows company directors with a single share class to authorise the allotment of ordinary shares without the approval of the current 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 the issue and transfer of shares, contact our professional and experienced company formations team now for fast, friendly, and expert advice.