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Transfer and transmission of shares

Transfer and transmission of shares

Contents

Transfer of shares

The company's articles of association (the company's set of rules) usually allow a shareholder ('the transferor') to transfer shares to someone else ('the transferee'). The transfer may be a sale or a gift of the shares.

Sometimes the articles contain restrictions on transferring shares. This could include requiring shareholders selling their shares to first offer them to the other shareholders before offering them to outsiders. There is no such restriction in the standard model articles for private companies limited by shares. You should check the articles of association of your company to see if there are any of these restrictions. If there is a shareholders' agreement, this might also contain restrictions on transfers.

The articles may also give the directors a discretion to refuse to register a transfer. However, they must act in good faith and make a decision within a reasonable time – usually within 2 months.

The transferor must sign a stock transfer form and give it to the transferee along with the share certificate.

There is no stamp duty to pay if the shares are a gift or being sold for less than £1,000. However, the first exemption certificate on the back of the stock transfer form should be filled in and signed. If the shares are being sold for more than £1,000, the transferee must pay stamp duty of 0.5% rounded up to the nearest £5. The transferee should send the stock transfer form to HMRC with a cheque for the stamp duty. HMRC will stamp and return the stock transfer form to the transferee. The transferee should then send the transfer form and share certificate to the company. If the directors accept the transfer, the company should send a new share certificate to the transferee and put the transferee's name in the register of members within 2 months.

The default, or 'model', articles for a private company limited by shares state that:

  • The company can keep registered stock transfer forms.
  • The company can't charge a fee to register a transfer document.
  • The transferor remains the holder of a share until the transferee's name is entered into the register of members.
  • The directors can refuse to register a transfer. If they do so, they must return the stock transfer form with a notice giving their reasons for refusing it (unless the directors suspect that the proposed transfer is fraudulent).

Transmission of shares

Transmission is the automatic transfer of a share for a particular legal reason.

This will occur, for example:

  • when a shareholder dies, and leaves a will, their shares will be automatically transferred to the executor of the will.
  • when a shareholder dies without leaving a will, their shares will be automatically transferred to their Administrator when the Court grants the Letters of Administration appointing the Administrator as their personal representative; or
  • when a shareholder is declared bankrupt, their shares will be transferred to their trustee-in-bankruptcy. This is the person who is appointed to deal with the shareholder's financial affairs.

The executor or administrator must show the company the grant from the Court proving their authority to act as the personal representative of the shareholder who has died. The personal representative can then either:

  • register themselves as a member;
  • transfer the shares directly to the person entitled to inherit them; or
  • transfer them to the buyer if they're selling the shares.

A trustee in bankruptcy has a similar choice. They have to show the company the court order appointing them. They can then choose to be registered as a member or to transfer the shares to a buyer.