Limited companies can issue more shares at any point after incorporation. Likewise, shareholders (members) can transfer or sell their company shares to other people at any time. In both situations, the procedures must be in accordance with the provisions set out in the Companies Act 2006, the articles of association, and the shareholder’s agreement (if applicable).
How to transfer company shares
Limited company shares can be transferred from one person to another in exchange for:
- a cash payment
- a non-cash consideration such as goods, services, knowledge, or writing off debts
- as part of an employee share scheme
- as a gift to a family member or spouse
If you wish to transfer or sell shares after company formation, you should begin by completing a Stock Transfer Form. The following details must be provided on this form:
- company name
- Company Registration Number (CRN)
- quantity and class(es) of shares being transferred
- name and address of existing shareholder (transferor)
- name and address of new shareholder (transferee)
- amount paid for the shares
- details of non-cash payments, if applicable
- signature of the transferor
- Stamp Duty liability, if applicable.
The transfer must then be approved by the board of directors or the existing members (the latter of whom may also need to waive their right to pre-emption, if applicable).
When the transfer is complete, the director(s) must provide a copy of the stock transfer form to the transferor and transferee. The company should retain a copy with its statutory records, which must be stored at the registered office or SAIL address.
The new shareholder must be issued with share certificates as proof of ownership. The statutory register of members should be updated as soon as possible to reflect the share transfer and record details of the new and old shareholders. If necessary, the register of People with Significant Control (PSC register) will also need to be updated.
There is no need to immediately notify Companies House when a share transfer takes place. These changes can be reported on the next annual confirmation statement.
A copy of the stock transfer form must be delivered to HMRC if the sale value of the transfer exceeds £1,000. The transferee will be liable to pay Stamp Duty tax of 0.5% of the total sale value.
Issuing company shares after incorporation
Companies may be required to issue new shares for many reasons, such as:
- bringing in new business partners
- raising capital from outside investors to fund expansion or pay for a new project
- to pay business debts
- to introduce a bonus scheme for employees
- to gift shares to family members
The Companies Act 2006 imposes no legal restriction on the number of shares that a private company can issue during or after incorporation. However, it is possible to include certain restrictions in the articles of association and shareholders’ agreement, if required. Such restrictions include authorised share capital, pre-emption rights of existing members, and the director’s power to authorise allotments.
To issue more company shares after incorporation, the prospective member(s) must make an application to the company. Existing members should waive their right to pre-emption (if applicable), and any other provisions described in the constitution should be complied with.
Finally, the allotment should be accepted by either the directors or shareholders, dependent on the company’s articles. Once the allotment has taken place, the directors must provide the following details on the Return of Allotment of Shares (Companies House form SH01):
- company name
- Company Registration Number
- date(s) of allotment(s)
- number, class (type), currency, and nominal value of each share
- amount paid or unpaid on shares
- details of non-cash payments, if applicable
- Statement of Capital.
- prescribed particulars (rights) attached to shares
- director’s signature.
Directors are legally responsible for filing Form SH01 at Companies House no later than 1 month after the allotment of company shares. They must also:
- provide a share certificate to each new shareholder
- retain copies of share certificates at the company’s registered office or SAIL address
- update the statutory register of members
- update the company’s PSC register (if applicable)
- report the changes to Companies House on the next confirmation statement
What is authorised share capital?
Authorised capital is an optional provision that can be included in the articles of association. It limits the number and value of issued shares that a company may have at any given time.
Companies formed before 1st October 2009 under the Companies Act 1985 have this provision automatically included in their articles.
The introduction of the Companies Act 2006 now allows members to amend or remove this provision at any time by passing a special resolution.
Companies incorporated after 1st October 2009 are free to forgo this provision entirely, unless it is explicitly required under their articles.
Why is authorised share capital no longer a legal requirement?
Authorised share capital became optional when Stamp Duty ceased to be payable on authorised capital. When companies were incorporated under the Companies Act 1985, they were required to pay Stamp Duty in relation to their authorised capital.
This was stated in the memorandum and articles of association as a sum of money divided into a quantity of shares of a fixed value. Companies were not required to issue all of their authorised shares, but they were not permitted to issue more than the maximum figure shown in the memorandum and articles.
Stamp Duty on shares is now only payable to HMRC when the sale value of a transfer exceeds £1,000.
What are pre-emption rights of existing shareholders?
Pre-emption rights are provisions that provide existing members with first refusal of any new or existing company shares that become available. The Companies Act provides default pre-emption rights on the allotment of shares, which companies can disapply or replace in their articles.
Whilst there are no automatic statutory provisions for pre-emption rights on the transfer of shares, companies can choose to include such provisions in their articles.
This provision protects members against the unfair dilution of their shares because it enables them to maintain their existing proportion of ownership and control.
- You own 25% of the company’s issued shares
- You must be given the option to purchase 25% of any company shares that become available
- If you decline to purchase the shares, they can then be offered to outside investors
Pre-emption rights can also prevent non-members joining a company and potentially harming the status quo or mission of the business.
Directors’ power to transfer and allot company shares
The rights and powers of directors, including the power to transfer and allot shares, are outlined in the Companies Act 2006, the articles of association, and any service agreement between the company and director. However, members have the power to alter these rights at any time by passing a resolution.
Directors’ power to transfer company shares
Share transfers can usually be authorised by directors. However, due to the impact that transfers can have on members’ beneficial rights and controlling interests, directors are sometimes prohibited from authorising transfers without the permission of existing members.
When a director has no power to authorise the transfer of company shares, the members must pass a resolution to either grant such authorisation to the director or permit the transfer on that occasion.
Directors’ power to issuing company shares
The articles adopted by any private limited company formed after 1st October 2009 permit directors of companies with a single share class to authorise the allotment of ordinary shares without the approval of the existing members. This power, however, is still at the discretion of members because, under the articles, they have the right to restrict the directors’ powers.
If directors are not permitted to authorise an allotment, the shareholders must either pass a resolution to approve the allotment, or amend the articles to grant such power to the directors.