When a UK Company is incorporated, the legal ownership of the company is denoted by the person(s)/ entities holding the shares in the company as stated in the share register and the issued share certificate(s).
In order to transfer the shareholding in a UK Company, a number of formalities must be considered.
Items To Consider
Before proceeding with transferring shares in a UK company, the conditions under which the shares can be transferred will be set out in the articles of association and if applicable, the shareholders agreement.
Before a transfer of shares in approved, the following might be contemplated:
- Consideration Payable and stamp duty payable if applicable. Consideration can equate to a cash payment or a non-cash payment such as goods or the writing off of debt;
- If the shares are fully paid or partly paid;
- Effective Date of the Share Transfer;
- Any rights affixed to the shares held by any other shareholders in the company regarding first refusal to purchase shares; and
- Directors' power to authorise the transfer.
Completion Of The Stock Transfer Form
After the considering the above, a stock transfer form must be completed with the following information:
- Company name and company registration number;
- Amount and class of shares being transferred;
- Consideration payable;
- Name and address of the transferor and the transferee; and
- Amount paid (or unpaid) on each share.
Is A Share Purchase Agreement Necessary?
Although there is no legal requirement for the sale of the legal and beneficial title of shares to be made in writing, it would be typical to have the transferor and transferee enter into a share purchase agreement covering such items amongst others as the consideration payable, warranties, indemnities and the conditions for payment of the consideration.
Where the consideration payable for the shares in a UK Company exceeds £1,000, the transferee will be required to pay stamp duty on the transaction to HM Revenue and Customs in the UK.
The current rate of stamp duty on shares is 0.5% of the total consideration, rounded up to the nearest £5. For example, 0.5% on a share transfer with consideration payable of £1,234 would equate to £6.14. Therefore, the stamp duty payable would be £10 (i.e., £6.14 rounded up to £10).
In order to obtain a stamped stock transfer form, the signed stock transfer form is sent to HM Revenue and Customs with the payment of the stamp duty.
If accepted and stamped by HM Revenue and Customs, the stock transfer form will be stamped and returned in approximately 5-10 working days.
When Is The Share Transfer Actually Completed?
A completed, stamped (if stamp duty is due), signed and delivered stock transfer form does not automatically transfer legal title of the shares to the transferee.
In order to complete the transfer the legal title of the shares, a completed, executed and stamped stock transfer form must be delivered to the company for approval.
The transferee is deemed to be the new shareholder once the stock transfer is approved and the name of the transferee is entered into the company’s register of members.
Once the share transfer is complete, the company will cancel the returned original share certificate from the transferor and issue a new share certificate in the name of the transferee.