A Guide to Transferring and Issuing UK Company Shares

Ryan Patrick

Mar 9, 2024 • 9 min read

Companies limited by shares have multiple owners who divide the company into portions.

These portions are known as shares and the people Shareholders.

A company that an individual owns has a single share, and the shareholder owns and controls the company 100%.

For companies with multiple shares, each share is a portion that cumulatively makes 100% of the company. When shareholders buy these shares, they end up owning a part of the company or all of it.

The process must follow the Companies Act 2006, the company’s articles of association, and the shareholders’ agreement (where necessary). Don’t miss out on this exciting discussion, but learn everything you need to know about the transfer and issuing of UK company shares here.

What is the Transfer and Issuing of Shares?

The transfer of shares means one or more members are giving up some or all of their shares to someone else. Share transfer can happen anytime after incorporation, but it’s not a process you get up and complete. Shareholders or members can transfer or sell their company shares to others anytime.

What is the issuing of shares? A newly formed private limited company must decide how many shares a member can own. The process is known as issuing shares, which are allocated to shareholders as per their agreement.

The transfer of shares among shareholders can occur at any time.

However, the transfer of shares doesn’t affect the shares in circulation.

Issuing of shares creates new shares, and how they’re allocated is outlined in a partnership agreement.

Steps to Transferring Company Shares

Transferring shares in a private limited company is complex; notify Companies House. Instead, there are set laws the process must abide by to allow the transfer of shares from one shareholder to another or a new entity. Let’s discuss the process of a successful share transfer.

1. Identify the Receiver

The person transferring the share must know to whom they’re moving it. , there must be a willing buyer. However, it may not be necessary for some companies since they have pre-emption rights in the Articles of Association (AOS) or shareholders agreement.

In this scenario, the person seeking to transfer their shares offers them to other shareholders. It allows other shareholders to take up the shares on offer proportionally. Hence, the person selling can look for a buyer without looking for a buyer.

If there’s no provision for pre-emption, giving shareholders a chance to buy more shares is better for the company than bringing in outsiders.

2. Set the Sale Price

Once you identify a buyer, the price or consideration for the transfer of shares must be agreed upon.

Generally, there are no ground rules on how much the shares can be sold, but a willing buyer willing seller agreement.

Besides money, shares can also be transferred for an exchange range of services which is known as a “non-cash consideration”.

After the seller and buyer agree, a settlement agreement may be entered to avoid future conflicts and make the transfer legal.

3. Complete a Stock Transfer Form

A stock transfer form details the transfer of shares in this manner:

The company’s name
The class of shares being transferred (name)
The shares being transferred (number)
The name and address of the seller
The name and address of the buyer
Payment or consideration for the shares

After completing this form, the seller signs and dates it.

A different stock form is used if the transferred shares are attached to a liability (they’re unpaid or partially paid). In this case, the buyer must sign and date the form.

The stock transfer form must be certified exempt from stamp duty if there’s no stamp duty. The seller ensures certification of the transfer of the shares.

4. Present the Signed Stock Form to the Company

After completion of the stock form, it’s then delivered to company directors for consideration. They decide whether to accept or deny the transfer by ensuring specific transfer procedures are followed.

If pre-emption rights exist, the directors can follow the process or disapprove the signed form.

Subject to meeting the transfer requirements, the directors accept the transfer.

5. Pay Stamp Duty (if applicable)

If stamp duty is required in the transfer, you pay for stamp duty.

Generally, if the share transfer is more than £1,000, the new shareholder pays 0.5% of the share sale price to HMRC.

If stamp duty applies, the signed stock transfer form is sent to HMRC and the necessary payment is made within 30 days.

Once HMRC is satisfied with the stamp duty paid, they confirm via a letter.

So far, the share transfer process is successful and can be entered into the company’s member register.

Entering the transfer into the members register makes it LEGAL. Once the transferee’s name is entered in the register, they become the holder of those shares.

The seller should hand over the shares certificate to the company for CANCELLATION.

A share certificate is issued to the buyer if they sell some shares. It contains the following information.

Basic company information - name and registered office address
Date of issue (share certificate)
The unique certificate number
Shareholder’s name and address
Class of shares held, number, class, and value
The of the shares (paid, unpaid, partially paid)

The share certificate is executed on behalf of the company by two directors signing, one director and a secretary, or a single director and a witness.

Per the Companies Act 2006 section 776, the certificate must be issued to the new shareholder within two months.

7. Update People with Significant Control (PSC)

If the share transfer affects PSC, the company must inform them of the changes. If the new shareholder holds over 25% of the company shares, the director(s) must update the PSC register. The update must occur within 14 days after the individual becomes a PSC.

Why a Company Might Issue New Shares

A company might issue new shares for multiple reasons.

A common reason may be that the company wants to raise money from investors. Hence, they allow them to own part of the business. The process can also be a reward to employees or directors for a merger or business sale.

Why a Shareholder Might Want to Transfer Shares

A shareholder might want to transfer shares to raise money or to remove themselves from the business.

They might also want to give them to someone else or transfer them to a spouse as part of a divorce settlement. Other common types of transfer might be to a business partner due to the demise of a shareholder or part of a corporate restructure.

Issuing Company Shares

After incorporation, companies may have to issue new shares for these reasons:

To bring in new business partners
Raise capital from external investors to fund expansion or a new project
To settle business debts
To launch an employee bonus scheme
To gift family members shares

The Companies Act 2006 doesn’t impose any legal restrictions on the number of shares a private company can issue. However, some limits can be included in the AOS and shareholders’ agreement where necessary.

The most popular restriction is AUTHORISED CAPITAL, a cap on the issuable number of shares.

If some members wish to own more shares after incorporation, the prospective member(s) must apply to the company. Existing members can waive their pre-emption right by passing a Special Resolution (where applicable). As a result, compliance with any other provisions within the constitution is required.

The company then adopts the allotment through a board resolution. After allotment, the directors must fill the Companies House Form SH01 detailing the Return of Allotment of Shares. The form has these details:

Name of the company
Company Registration Number (CRN)
Allotment date
Share type (class), number, currency, and value
Paid amount of shares or unpaid
Details of considerations (non-cash payments) where applicable
Statement of Capital
Prescribed particulars (rights) attached to shares
Director’s signature

Who Fills Form SH01?

The director is responsible for filing Form SH01 at Companies House a month after the company share allotment. They’re also expected to:

Give the new shareholder a share certificate.
Keep copies of share certificates at the company’s registered office or SAIL address.
Update member’s statutory register
Update the company’s PSC register (where applicable)
Inform the Companies House of PSC changes and provide the details in the relevant forms. It should be done before filing the following confirmation statement.
Inform the Companies House of shareholder details and shareholding changes in the following confirmation statement.

Some companies include authorised share capital in their articles of association. It restricts the number and value of a company’s shares at a given time.

Today, authorised capital is optional. However, companies formed before October 1st 2009 had the provision automatically as part of their company article.

Companies incorporated after October 1st 2009 follow the Companies Act 2006 and can forgo the provision. Alternatively, they can include it in their company’s articles.

When payment on stamp duty was ceased, Authorised share capital became optional.

In pursuit of the Companies Act 1985, incorporated companies had to pay Stamp Duty as per the authorised capital. It was stated in the memorandum and articles of association as an amount of money divided as shares with a fixed value.

A company wasn’t required to issue all shares, but they were prohibited from issuing more shares than what’s stated in the memorandum and articles. Stamp duty is only payable to HMRC if a transfer is over £1,000.

About Pre-emption Rights

Pre-emption rights grant existing members the first opportunity to refuse new or existing company shares that become available.

There are default pre-emption rights under the Companies Act on share allotment. However, they can be waived or removed from the articles by passing a special resolution.

Although there are no statutory provisions for the transfer of shares pre-emption rights, companies can include such provisions in company articles.

The provision helps members retain their control of the company by protecting them against unfair distribution of their shares.

Pre-emption rights also block non-members from joining a company and causing potential harm to the mission of a business.

Potential Risks Linked to Shares Transfer

Before the transfer of shares, there are some things you should know:

The risk of the sale falling through. Hence, an agreement needs to be reached and written with all details of the sale.
Selling shares of a company that’s not solvent can lead to shareholders being liable for the debts.
Buying shares from a company in financial difficulties means the shareholder might not get their money after the transfer of the shares.
The buyer and seller should seek professional guidance from tax experts to avoid tax implications.

Before transferring or buying shares, ask a solicitor for guidance to minimise risks.

Transferable Private Company Shares

There are three categories of transferable shares in private companies:

Ordinary Shares - These shares are the most common, and shareholders can vote on significant decisions.
Preference Shares - These shares entitle shareholders to a fixed dividend above the rate of ordinary shares. There can also be a fixed amount the company will buy back during financial difficulties.
Founders’ Shares - These shares are issued to original shareholders of a company, giving them certain rights. Some of these rights include the right to appoint or remove directors.

Directors’ Power to Transfer and Issue Company Shares

Under the Companies Act 2006, articles of association, or agreement, directors can transfer and issue shares. However, members can change these rights by passing a resolution.

Power to Transfer Company Shares

Directors can authorise share transfers. However, due to the effect the transfers can have on members, directors can restrict transfers without the permission of existing members.

Directors can limit share transfer to protect members’ beneficial rights and control interests. Without the power to authorise share transfer, members must pass a resolution to grant the director authority or permit the transfer.

Power to Issue Company Shares

Private companies formed after October 1st 2009, can adopt articles that allow directors with a single share class to allot shares without the approval of existing members.

However, the power to restrict the shares is at members’ discretion since they can limit directors’ powers.

Suppose directors are not permitted to authorise an allotment. In that case, the shareholders must either pass a resolution to approve the allotment or amend the articles to grant such power to the directors.

Form Your Company With Incorpuk today

At Incorpuk, we will help you file accurate information when you register your company through us. We will help you with incorporation articles, a registered office address, and all you may need to register your company in the UK. Contact our team if you seek any information; we will gladly assist.

Frequently Asked Questions

A share transfer agreement is the formal proof of the transaction between a transferor and seller. The document consists of the sale details, such as the number of shares, the selling price, and any other commitment concerning the sale.

Can I transfer shares without a certificate?

You must have a share as proof of ownership. Hence, the seller must possess a certificate, and once the share transfer is complete, the new shareholder must be issued a share certificate.

The parties to a share transfer are the current shareholder (seller) and the buyer, who is about to become the new shareholder.

Can partnerships and companies own shares?

Companies and partnerships can own shares between businesses, known as cross-shareholding. It allows for more control and cooperation in the businesses.

Conclusion

When one or more shareholders in a private limited company decide to relinquish their shares or part of them, it is known as a share transfer. Share transfer can also happen when a shareholder wishes to retire. It also occurs when company ownership changes hands and an existing shareholder decides to CASH OUT. As for issuing shares, it’s the creation of new shares after a private limited company is set up. The new shares are allocated to incoming investors according to the Articles of Association or Director’s agreement.

Share issuing is done by a company to generate more income or to scale operations. The number of shares issued depends on the capital they want to raise. Similar to share transfer issuing, any shareholder agreements or articles of association must be considered. Referring to these documents ensures all restrictions associated with both processes are done correctly. Both parties (seller and buyer) should ensure there’s a written agreement with details of the transfer to make the process legal. Would you like to speak with an expert on transferring and issuing UK Company tax? Contact Incorpuk here for expert advice today.