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A brief guide to share transfers in your company 
1st Apr 2022
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A brief guide to share transfers in your company  - Linkilaw Solicitors
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A Share Transfer is the process of transferring existing shares from one person to another, either by sale or gift, rather than issuing new shares. 

Typically, shares are transferred to bring a new key business partner on board. Alternatively, it can be for personal reasons, such as wanting to transfer shares to a family member.

The Companies Act 2006 sets out the rules governing the transfer of the share capital of a private limited company.

As a general principle, both the legal and beneficial title to shares are freely transferable in time and to any person with the capacity to hold the shares unless the company’s articles of association contain express provisions to the contrary.

Share transfers – any restrictions?

Shareholders of private or unlisted public companies will often wish to control the admission of new shareholders to the company, especially if this could have a significant impact on the management or control of the company.

For this reason, it is common practice in such companies to subject to some degree of qualification or restriction the shareholders’ rights to transfer their shares.

The rights and obligations in relation to the transfer of shares, including transfer restrictions, are incorporated in the company’s articles of association or the shareholders’ agreement.

It is important to note that the provisions in a company’s articles will automatically bind any new shareholder. In contrast, the shareholders’ agreement will only bind those shareholders that have agreed to become a party to it.

Some common transfer restrictions are:  

  • Prohibitions on transfer: this provision restricts the shareholders’ capacity to transfer shares during a specified period or to a particular type of transferee.
  • Power to refuse registration: the directors’ right to refuse to register a transfer of shares. Certain events or circumstances can limit this power depending on what is agreed by the company and its shareholders. 
  • Pre-emption rights: the shareholder wishing to make the transfer must first offer the shares to the existing shareholders or certain other persons (usually at an agreed price). Pre-emption rights are common in private companies to allow existing shareholders to block a potential third party. 

Share transfers - director

Therefore, it is essential to check the company’s articles and shareholders’ agreement to ensure that neither of these documents contains any terms that might restrict the proposed transfer.

However, the shareholders’ can pass a resolution to disapply those restrictions or agree unanimously that those restrictions should be waived or disapplied.

Share transfers process and documents  

A transfer by way of a sale of the legal and beneficial interest in shares involves the following stages: 

1. Agreement for the sale of shares 

The seller and the buyer agree to the sale and purchase of the shares.

There is no legal requirement for an agreement to sell and purchase the legal and beneficial title to shares to be made in writing. In some situations, it may be appropriate for the transaction to be effected simply by the delivery to the buyer of a duly executed stock transfer form and the buyer’s payment of the purchase price.

However, it is common practice for both parties involved to document the sale and purchase of the shares in a written contract, usually referred to as a share purchase agreement (SPA).

Share purchase agreements tend to be particularly lengthy and complex when the transaction involves the sale of the entire issued share capital of the company, or it will otherwise pass control of the target company to the buyer.

2. Transfer form 

A stock transfer form is a standard document used to transfer existing shares.

It contains details of the seller and the buyer, the type and number of shares transferred, and considerations concerning the shares’ payment.

As a pre-condition to the transfer registration, a stamp duty (a tax payable to HMRC) has to be paid unless an exception applies. HMRC will stamp the stock transfer form, and then it is ready to be presented to the company for registration.

Along with the executed stock transfer form and HMRC letter confirming that the stock transfer form has been duly stamped, a company will usually require the share certificate relating to transferred shares to be delivered to it.

3. Approving registration of the transfer  

When a stock transfer form is submitted to a company for registration, the board of directors are subject to a statutory obligation to either approve and register the transfer or give the buyer notice of refusal to register the transfer and the reasons for their refusal.

4. Issuing a share certificate to the transferee  

Following registration, the company issues a new share certificate regarding the transferred shares to the buyer. The share certificate must be issued within two months.

The share certificate is evidence that the transferee is the legal owner of the transferred shares.

Finally, the company will need to update its register of transfers and persons with significant control (PSC register) or legal entities with significant control (RLE register).

The company will also need to include the updated list of shareholders in Companies House as part of its next Confirmation Statement.

How could we help?

Our approach to corporate solutions balances the needs of the business as a whole with the goals of each founder, director and investor involved. If you’re considering transferring shares in your company, book an introductory call with our legal team.

Our team of experienced legal professionals are here to help you in every phase of your business journey.

Our legal commentary is not intended to be a comprehensive review of all developments in law and practice. Please seek legal advice before applying it to specific issues or transactions.

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