Shares are items of property and, like any other property, can be sold or given away. The sale or gift will require a transfer of the shares. Shares were developed as a means of allowing a group of people to invest in a business project by buying shares of it. To be an attractive investment, the shares had to be transferable, so that the investor could sell the shares to retrieve their value. So shares are presumed to be capable of transfer, even in a private company, unless the company has restricted the right to transfer them by a provision in its articles, or the shareholder has entered into a contract, such as a shareholders' agreement, not to transfer the shares.
- Transfer procedure
- Stamp duty
- Restrictions on transfer
- Model Articles provisions
- Table A provisions
- New statutory provisions under CA 2006
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.
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. 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 articles which restricts transfers or gives the board a discretion to decline them. 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 company 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.
The company 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 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.
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 for consideration below £1,000 or by 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 stamp office of the Inland Revenue.
Restriction on transfer
These will depend on the company's articles. The Model Articles have a restriction, but Table A (from 1981) does not. In practice most private companies will want some control over the transfer of their shares. Provisions vary from a simple power for the directors to decline any transfer (as found in the Model Articles) to pre-emption provisions, free transfers to family members and even provisions for enforced transfer in certain circumstances (e.g. if the shareholder ceases to be a director). Having the right provisions in the articles can be vitally important. Company Law Solutions can advise and draft any required provisions.
26. (1) Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the directors, which is executed by or on behalf of the transferor.
(2) No fee may be charged for registering any instrument of transfer or other document relating to or affecting the title to any share.
(3) The company may retain any instrument of transfer which is registered.
(4) The transferor remains the holder of a share until the transferee's name is entered in the register of members as holder of it.
(5) The directors may refuse to register the transfer of a share, and if they do so, the instrument of transfer must be returned to the transferee with the notice of refusal unless they suspect that the proposed transfer may be fraudulent.
Transfer of shares
23. The instrument of transfer of a share may be in any usual form or in any other form which the directors may approve and shall be executed by or on behalf of the transferor and, unless the share is fully paid, by or on behalf of the transferee.
24. 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.
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.
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 2006, sec561-577 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.
It is important that a company's articles contain appropriate provisions on the transfer of shares. Company Law Solutions provides an expert service for all your company law requirements, including advice about share allotments and transfers.