The transfer of shares in a private limited company from one party to another can occur under a variety of circumstances, whether by a gift, a corporate transaction or through inheritance. What may be surprising is the transfer of shares is not governed by the Companies Act 2006 or any other statute. However, there are important processes which must be followed to ensure the shares are properly transferred to prevent problems in the future.
A company will usually have specific rules regarding how shares must be transferred within its articles of association (Articles). These are publicly available to view on Companies House, however, there may also be a shareholder’s agreement which might impose additional requirements. A shareholder’s agreement is not a public document but will still have to be complied with by the outgoing and incoming shareholders. A buyer should make sure they are aware of these additional requirements before proceeding with a transfer.
In the case of a share purchase, it is common for parties to enter into a share purchase agreement after negotiating the price and conditions of the transfer. There is no requirement to have a written agreement for the transfer but without one, there are no contractual guarantees/warranties to protect the interests of both the incoming and outgoing shareholders.
A number of essential steps must be completed to change ownership, as follows:
- The seller will need to sign a stock transfer form which would be presented to the buyer which contains the details of both parties, the shares which are being exchanged and the consideration.
- The seller must surrender their share certificate to the Company but in the case the share certificate has been lost the seller can instead provide a lost share certificate indemnity.
- The transfer and surrendered share certificate or indemnity must be presented to the Company, in order that the Company’s registers can be written up and a new share certificate issued.
In the majority of situations, where consideration for the shares is over £1,000, stamp duty must be paid to HMRC by the Buyer, who will then send a letter of confirmation, which the company should keep in their records as evidence of this payment, once received from the Buyer.
Overall, these are the essential steps that you should take, but there may be other steps required by the company’s articles or shareholders agreement. It is important to ensure that the transfer is completed and documented correctly to effect the change in ownership of the shares.
If you require assistance with transferring shares in a Company, then please contact us to speak to a member of our Company Secretariat Team.
