In a Limited Company, sometimes shares are transferred from one shareholder to another. Given that shares are an instrument of ownership in the Company, transfer of shares is an important issue. In this article of 'Path of Education for New Contractors', we look at transfer of shares in detail.
Common Reasons for transfer of shares:
A Limited Company's shares could be transferred for various reasons, some of these are listed below
- Transfer of shares by Directors to their spouse or children to save taxes
- Sale of shares by existing shareholders to new shareholders to earn a profit
- Upon the death of an existing shareholder, shares are transferred to a new shareholder
- Share transfer between two existing shareholders in exchange of cash
- Retirement of an existing shareholder
Steps involved in the transfer of shares:
For the transfer of shares, legal procedures must be followed. Each legal procedure is important, to prevent legal trouble with Her Majesty's Revenue and Customs (HMRC) and Companies House. Different steps are required by different stakeholders -- transferer/seller, the receiver/buyer, and finally, the Company.
- Signing of stock transfer form by the seller: Stock transfer form, also known as the J30 form, should be filled in by the seller. The stock transfer form should include sellers details like name, address, number of shares being transferred, and signature. Name and address of the buyer of shares should also be included in the stock transfer form. The seller should hand over the filled stock transfer form along with the share certificate to the buyer.
- Sending the stock transfer form for stamping and paying stamp duty: If the amount of the transaction is more than £1,000, the buyer of shares has to pay a stamp duty of 0.5% of the transaction value. For example, if the buyer is getting shares worth £5,000, there will be a stamp duty of £25. The seller will have to send the stock transfer form along with the amount payable to HMRC. There is no need to send the share certificate to HMRC.
In many instances, share transfer is exempted from stamp duty. For example, if the receiver is getting shares as a gift without paying any cash, or if shares are transferred as a collateral for a loan, there is no need to pay stamp duty. In such scenarios, the buyer can collect the form from the seller and send it to the Company.
- Checking of stock transfer documents by the Company: The Company should check the key details once it receives the stock transfer form. They should verify the accuracy of all the details filled in by the transferer or seller. If the buyers are inheritors of a deceased shareholder, they should have been legally authorised to receive shares.
- Approval by Board of Directors: Once the Company checks the document, the Board of Directors should approve the transfer through a board resolution. Typically, this process is a formality, unless the transfer process is not in compliance with either government rules or the Companys Articles of Association. The Company should decide on the stock transfer (either approval or rejection) within two months.
- Update in the register of members: Upon approving the transfer of shares, the Company should update its register of members by cancelling the details of the original shareholder. If there's a part transfer of shares, the register of members should reflect the seller's revised number of shares. Also, an entry should be made in the register about the buyer or transferee.
If shares are transferred between two existing shareholders, the register of members should reflect the revised number of shares. This step is the most important, as the original shareholder will continue to own the shares until a change is made in the register of members, as legally, the register of members is the main document proof of ownership of shares in a Limited Company.
- Share certificates: The Company should cancel the share certificates of the seller, and issue new share certificates to the buyer. Also, the Company should update its records about total share certificates issued. The Company should maintain the stock transfer form and the old share certificates in its records.
- Informing Companies House about the transfer: At the time of share transfer, there is no need to inform Companies House, because the total number of shares in the Company remains the same. However, the Company should inform Companies House about any share transfers whenever they file their next annual return.
Conclusion:
As you can see, none of the steps mentioned above can be omitted while transferring shares. Typically, the Director or the Company Secretary are responsible for completing all formalities on behalf of the Company. If you don't have a Company Secretary, you can consider using the Company Secretarial services of which will take care of all the paperwork related to share transfers.
Further Reading
- Limited Company Dividends
- Limited Company Shares - An Overview
- Limited Company Shares - Issuing of Shares
- Limited Company - Transfer of Shares
- Limited Company - An overview
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