Transferring shares is popular in the UK by selling or gifting shares to new shareholders. You can transfer a company share during incorporation or transfer later. However, in both cases, you must abide by the rules set out in the Companies Act 2006, the articles of association, and, if applicable, the shareholder’s agreement.
This blog post will discuss transferring a company share without facing legal difficulties.
Table of content
● What does a share transfer mean?
● Procedure for a share transfer
● What are the key considerations for buying or selling shares in a private limited company?
● What are the tax implications for private limited companies?
● How much is the stamp duty for stock transfer?
● Rules and regulations on share transfers for Limited liability company
What does a share transfer mean?
The share transfer is a voluntary pass on a company’s share to another party under certain conditions and regulations. The Articles of Association impose a few restrictions on share transfer that companies must consider.
You can legally transfer company shares to an individual anytime. However, you must fill out a stock transfer form. A few of the reasons for share transfer are,
● Death of a shareholder
● Selling out shares to recoup the investment
● Gifting shares
● Exchange for goods or services
● Clear off debts
Procedure for a share transfer
For transferring shares in the UK, you must fill out a Stock Transfer Form and provide specific details, including,
● The quantity, class and type of shares being transferred
● Details about the buyer and seller
● Value of your payments for the shares in cash, stock and shares, debt, as chargeable considerations ( if you don’t pay any chargeable considerations, enter ‘Nil’)
If the value of the stock sale is below £1,000, you don’t need to inform the HMRC. However, you may need to provide the following:
● Certificate 1: If the chargeable consideration is up to £1000, and the transfer is not a part of a more significant transaction or a series of transactions exceeding £1,000, provide certificate 1.
● Certificate 2: If your transfer is exempt from Stamp Duty and the given consideration is not chargeable, fill out certificate two on the back of the form.
You don’t need to fill any certificates if there is no consideration given for shares or you are claiming a stamp duty relief. However, you need to send the completed stock transfer form together with the details of the relief to HMRC.
What are the key considerations for buying or selling shares in a private limited company?
Transferring shares in a private limited company can be challenging as it includes various legal obligations and tax implications.
Before transferring shares, you must consider what constraints apply to the process. Then, check whether they follow the company’s Articles of Association terms.
Plus, you must have a shareholders agreement in place to document rules on the rights of shareholders and to govern how shares are sold or bought.
As a company director, you must refuse or approve the share transfer within two months of receiving a stock transfer form.
After approving a share transfer, the company must:
● Make an entry of the new shareholder on the statutory shareholder register, and issue a share certificate within two months to the new share owner
● Update the register of share transfers within two months
● Update the Persons of Significant Control register to Companies House within 14 days
You don’t need to inform the company’s house about a share transfer immediately, but update the information before the next confirmation statement is due. Before filing the confirmation statement, you must inform the changes of PSC details on a relevant Companies House PSC form.
What are the tax implications for private limited companies?
If you make a capital gain above the tax-free allowance of £12,300 (2022-23, reducing to £6,000 for 2023-24) on selling or gifting shares, you are liable to pay capital gains tax. If you hold shares under a tax-sheltered account like an ISA, you get tax reliefs like an entrepreneurs’ relief or when transferring shares to a spouse and charity.
However, if you are a corporate entity, you must pay corporation tax on the profit from the sale.
Buyers and receivers of the shares must pay stamp duty.
If an employer gives a share to employees, it is deemed a benefit in kind and attracts income tax and National Insurance.
How much is the stamp duty for stock transfer?
The person receiving the shares must pay stamp duty if they pay more than £1,000. However, no stamp duty payments are required if they pay less than £1000, or shares are gifted. They need to send the stock transfer form to HMRC within 30 days of the transfer date to get approval and a stamp.
The stamp duty tax is 0.5% of the total selling value.
However, your transfers can receive stem duty exemption under certain conditions. For example, if you receive shares as a gift and do not pay anything for them, or you’re gifting shares to spouse or civil partners and transferring shares held in the trust to another trustee.
Rules and regulations on share transfers for Limited liability company
1. Receive consent
Before transferring a share, the shareholder must ask other members of the private limited company and receive a unanimous consent agreement.
2. Pre-emption rights
The priority while selling a share must be to the company’s shareholders before individuals outside the company.
3. Family shares
If you want to transfer shares to family members, ask for consent from all others of the private limited company. Companies restrict transferring shares to individuals, not immediate family members, to any family members, or some family members.
4. Death of shareholder
While transferring shares in case of death of a shareholder, you must follow his will or give priority to other shareholders.
5. Drag and Tag along clauses
The drag and tag along clauses protect shareholders when a company is willing to sell its shares. The drag-along clause protects majority shareholders, while the tag-along clause protects minority shareholders of a private limited company.
Shae transfer can be challenging, especially for new entrepreneurs. It is advisable to speak with an accountant or an advisor before selling or gifting shares, understand the entire process, and look out for tax implications.