Shares are transferable property. Accordingly, they can be bought and sold. So a person holding shares in a company can sell all or part of his shareholding to another or several other persons.
The more usual reasons for transferring ownership of shares are as follows:
- For tax planning purposes so that income and gains can be transferred to a spouse
- To give business partners an interest in the company
- To distribute ownership of the estate following the death of a shareholder.
- As part of a property split following a divorce or the failure of a civil partnership
- To realise a gain by selling the shares to a third party for a profit.
- To facilitate a corporate restructure.
There may be provisions in the Articles of Association or the shareholders' agreement, restricting the sale of shares. Pre-emption rights are a common restriction in both documents. They mandate that a shareholder must first offer his shares to his fellow shareholders and not to a third party. Another example is the inclusion of a clause obligating directors to have a minimum shareholding.
Paid and Unpaid or partly paid shares and market value.
Shares are issued at a nominal value, usually £1. That nominal value can be deemed to be fully paid, partly paid or nil paid. So, as an example, a company issuing £1 shares 50p paid is receiving 50p for each share and may ask for the remaining 50p at some later date. The unpaid portion of a share is a potential liability to its owner.
The nominal value of a share does not reflect its market value. Any study of the price movements of shares traded on a stock market will show that shares are bought and sold for varying prices throughout the day. None of those prices equals the nominal value of those shares.
The procedure for transferring shares is as follows:
- The seller (transferor) completes the appropriate stock transfer form; this will be:
- Form J30 if the shares are fully paid up, or
- Form J10 if the shares are partly or nil paid up.
- If there is a potential liability on the shares because they are nil or partly paid, the buyer or recipient of the shares (if the shares are being gifted) should sign form J10 to confirm that he accepts that there is a potential liability relating to the unpaid element of the shares they are acquiring.
- J10s or J30s need to be completed for each class of share being transferred.
- If the market value of the transaction exceeds £1000, the person acquiring the shares has to pay stamp duty based on their value. The certificate requires an entry to be made stating the consideration passing for the shares being transferred. The consideration will generally be the value of the shares. The person signing the certificate also confirms that this transfer is not part of a series of transactions valued at over £1000 in total, to ensure that stamp duty is not being avoided. The consideration need not be monetary; it can be in exchange for shares in another company or services or for something else of value. If stamp duty is payable the document and payment needs to be sent to HMRC, Stamp Duty Office, 9th Floor, City Centre House, 30 Union Street, Birmingham, B2 4AR
- The redundant share certificates are cancelled, and new share certificates are issued by the directors. Entries are made in the statutory books, but Companies House is not notified.
- The next annual confirmation statement that the company submits to companies house will include details of the share transfers and the new shareholders and shareholdings.
It is important to bear in mind that when shares are being transferred, they need to be valued. You should consult your professional advisors before making a transfer.
Samples of the relevant documentation are attached below:
If you would like us to prepare your documents (Minutes of meeting, j10 or j30 for each class of shares), we offer the service for £x per document.