Further to our blog on Share Capital and Share Classes for UK Companies, here we focus on the process of transferring the shares of a company limited by shares.
Articles of Association
A company’s articles of association, which are primarily concerned with matters related to the internal affairs of the company, usually contain provisions governing share transactions. Unless otherwise provided in the articles of association, a shareholder in a private company can transfer shares to anyone he or she chooses to, and on whatever terms are agreed between them.
However, the most up to date model articles for companies limited by shares (which apply to companies incorporated after 28 April 2013), allow directors to refuse the registration of a share transfer.
A company may adopt its own distinct set of articles rather than rely on the model articles and as a result, the company’s articles of association should always be reviewed before the directors approve a transfer. Additional clauses may be added to the model articles such as:
Related: UK Share Capital For Companies Limited By Shares – An Overview
- Free right to transfer shares to a specific category of person e.g. transfers between family members
- Pre-emption rights in favour of other shareholders – i.e., if a shareholder wishes to sell their shares, he or she must offer the shares to the other shareholders prior to offering them to a 3rd party
When a company’s board of directors is informed of the proposed transfer, they should not issue a replacement share certificate until they are in possession of the original stock transfer form and share certificate to be cancelled, and they have updated the company’s registers. In order to update the registers, the company will need to request the name and address of the new shareholder and establish if any consideration was paid for the shares. Shares need not be sold for their nominal value; they can be sold for less (nil shares or partially paid shares), or be sold for a premium.
Resolution / Directors’ Meeting
Once the relevant information has been obtained, the directors must consider the transfer. The company must accept the transfer unless there is a provision in its articles which restricts transfers or gives the board of director discretion to decline them. The transfer should be approved by a written resolution of directors, or at a directors’ meeting. The written resolution or minute should state the following:
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- Names of the transferor and transferee;
- Number of shares being transferred;
- Share certificate numbers for the cancelled and new share certificates
Stamp duty will be payable if the shares have been purchased for more than £1,000. Stamp duty is charged not only on the cash amount paid but also on all chargeable considerations. These can include:
- other stocks and shares
Stamp duty is calculated as 0.5% of the total consideration value and it is rounded up to the nearest £5. For example, if the total consideration equates to £28,500 a stamp duty of £145 would need to be paid (0.5% of £28,500 = £142.50 which is rounded up to £145).
Stamp duty is paid by completing a stock transfer form (STF) and by having the form signed by the transferor and sent to Her Majesties Revenue and Customs (HMRC), along with a stamped addressed envelope. The stock transfer form should be stamped by HMRC prior to being lodged with the company for registration. The duty can be paid electronically in advance or by cheque, which should be sent with the STF. Once HMRC receive payment they will stamp the form and return it to the address provided.
In order to avoid interest and possible penalties, stamp duty should be paid within 30 days of the execution date listed on the STF. If the consideration is less than £1,000, it may be possible to claim an exemption from stamp duty by certifying the reverse of the STF to confirm that the transaction does not form part of a larger transaction or series of transactions with an aggregate value in excess of £1,000.
Companies House are informed of the transfer when the company’s next annual return (to be replaced by Confirmation Statement in June 2016) is filed.
As with all share transactions, it is important for companies dealing with share transfers to review their articles of association and accurately update their registers and records. Where applicable, appropriate advice should be sought to ensure that the correct procedure is followed and the relevant deadlines are met.
Please note that this commentary is general in nature and is not intended to represent formal advice. Appropriate advice should be taken on all aspects of UK Company Share Transfers and related obligations.