How are shares transferred?
Incorporation
Services Limited provides an expert service for
all your company formation and company law requirements,
including advice about share allotments and transfers.
From 6th. April 2008, a new provision of the Companies
Act 2006 imposes duties on a company where a share transfer
is refused. For details, see below.
The standard form required to transfer shares is a 'stock transfer form', duly
stamped with payment of stamp duty. A stock transfer from (in accordance with
the Stock Transfer Act 1963) will be a proper instrument for the transfer of
any shares in any company, as required by CA 1985, sec183.
Procedure
The shareholder (usually called 'the transferor') provides the transferee with
a duly completed and signed stock transfer form and the share certificate in
respect of the shares to be transferred. The transferee has the transfer stamped
by paying the relevant amount of stamp duty (see below) and then sends the stock
transfer form and the share certificate to the company. By CA sec183 (1) It
is not lawful for a company to register a transfer of shares unless a proper
instrument of transfer has been delivered to it, or the transfer is an exempt
transfer within the Stock Transfer Act 1982. This applies notwithstanding anything
in the company's articles.
The company decides whether to accept the transfer. This should be done by
a resolution of the board unless the secretary has previously been authorised
by the board to accept transfers. The company must accept the transfer unless
there is some provision in its memorandum or articles which restricts transfers
or gives the board a discretion to decline them - (see below). By CA 1985, sec183(5),
if a company refuses to register a transfer it shall within two months after
the date on which the transfer was lodged with it, send to the transferee notice
of the refusal.
If the transfer is accepted by the company, the secretary will make the necessary
entries in the register of members (and, if the company keeps one, the register
of transfers) and issues a share certificate to the transferee. The certificate
must be available within two months after the date when the transfer was lodged:
sec185(1).
The secretary keeps the stock transfer form and the old share certificate (which should have 'Cancelled' stamped or written across it so that it cannot be re-issued inadvertently). No form or notice is sent to Companies House.
If a director has any interest in the shares s/he must notify the company in
writing of that interest within 5 days (sec324 and Sched. 13) and an entry must
be made in the register of directors' interests kept under sec325. Note that
'interest' for these purposes is widely defined. See related topic: what is
the register of directors' interests?(below)
If the transfer is for part only of the transferor's shareholding, the transferor
will not wish to part with a share certificate for the larger number of shares.
Either the transferor could request the company for split certificates or a
"certificated transfer", a stock transfer form certificated by the company to
the effect that the certificate has been lodged. See CA 1985, sec184.
Stamp duty
Stamp duty is payable on the sale of shares at a rate of 50p per £100 or part
thereof. It is payable on the full amount and is subject to a minimum amount
of £5. There is no exempt band. If the shares are transferred by way way of
a gift or settlement, exemption can be claimed by completing and signing the
reverse of the form. Stamp duty is paid by taking or sending the form to the
local stamp office of the Inland Revenue.
Restriction on transfer
The only provision in Table A is article 24, which provides:
The directors may refuse to register the transfer of a share which is not fully
paid to a person of whom they do not approve and they may refuse to register
the transfer of a share on which the company has a lien. They may also refuse
to register a transfer unless:
(a) it is lodged at the office or at such other place as the directors may appoint
and is accompanied by the certificate for the shares to which it relates and
such other evidence as the directors may reasonably require to show the right
of the transferor to make the transfer;
(b) it is in respect of only one class of shares; and
(c) it is in favour of not more than four transferees
So under Table A articles fully paid shares are freely transferable. It is,
however, usual to have some restriction on transfer to be included in the articles
of a private company.
The commonest provision is:
'The directors may, in their absolute discretion and without assigning any reason therefor, decline to register the transfer of any share, whether or not it is a fully paid share, and clause 24 of Table A shall be modified accordingly.' This provision was to be found in part II of the versions of Table A in operation before 1985, and is widely included in various sets of standard articles.
The exercise by the directors of such a power is difficult
to challenge. It would be necessary for the transferee
to show bad faith: Re Smith & Fawcett Ltd [1942] Ch
304 CA. Notice also that there must be a resolution
passed to refuse the transfer. It
Sec771, Companies Act 2006 provides
a new procedure on transfer being lodged
(1) When a transfer of shares in or debentures of a
company has been lodged with the company, the company
must either-
(a) register the transfer, or
(b) give the transferee notice of refusal to register
the transfer, together with its reasons for the refusal,
as soon as practicable and in any event within two months
after the date on which the transfer is lodged with
it.
(2) If the company refuses to register the transfer,
it must provide the transferee with such further information
about the reasons for the refusal as the transferee
may reasonably request. This does not include copies
of minutes of meetings of directors.
(5) This section does not apply-
(a) in relation to a transfer of shares if the company
has issued a share warrant in respect of the shares
(see section 779);
(b) in relation to the transmission of shares or debentures
by operation of law.
The second most common restriction which is often included in articles is a
pre-emption provision, i.e. that shares must be offered to existing shareholders
in proportion to their present holdings. Note that the statutory pre-emptive
rights in CA 1985, sec89 apply only to allotments of shares. (See related topic:
What are pre-emptive rights?)
There may be other provisions, e.g. that shares are freely transferable to other members, or members of the family (defined) of the shareholder, but that other transfers may be refused by the directors. There can be provisions that a person who ceases to be a director has to transfer their shares.
Other Table A provisions relating to share transfers
25. If the directors refuse to register the transfer of a share , they shall
within two months after the date on which the transfer was lodged with the company
send to the transferee notice of the refusal.
26. The registration of transfers of shares or of transfers of any class of shares may be suspended at such times and for such periods (not exceeding thirty days in any year) as the directors may determine.
27. No fee shall be charged for the registration of any instrument of transfer or other document relating to or affecting the title to any share.
28. The company shall be entitled to retain any instrument of transfer which is registered, but any instrument of transfer which the directors refuse to register shall be returned to the person lodging it when notice of the refusal is given.
30. .......All the articles relating to the transfer of shares shall apply
to the notice or instrument of transfer as if it were an instrument of transfer
executed by the member and the death or bankruptcy of the member had not occurred.
Incorporation Services Limited provides an expert
service for all your company formation and company law requirements, including
advice about share allotments and transfers.
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