Share certificates – dealing with common scenarios

In a previous article we looked at the main requirements for share certificates. In this article, we look at how to deal with some of the common scenarios with share certificates that often cause confusion.

What share certificates do I need to issue after share transfers?

We explain share transfers themselves in more detail elsewhere, but the basic requirement is for a stock transfer form (usually form J30) to be completed by both the current and, where necessary, the new shareholder and then as required stamped by HM Revenue and Customs.

Any stamp duty should at the same time be paid to HMRC by the purchaser of the shares.

Once this is complete, the company should receive the stamped stock transfer form and the original share certificate.

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Next, we need to check that the details of the holding being transferred match with those in the company’s register of members. All being well there, the members’ register can then be updated (along with the register of transfers, if one is maintained) to reflect the transfer of shares.

It’s good practice to stamp or write “Cancelled” clearly on the old certificate alongside the date. As well as providing an audit trail, this prevents the certificate being re-issued by accident. If the transfer is for only part of the transferor’s shareholding, they will need a new certificate representing their reduced holding. We covered elsewhere the details that need to be on a share certificate.

A new certificate with a unique number should be provided to the person receiving the shares within two months of the transfer. If the shares are split between two or more different new holders (e.g. half the shares have been sold to one person and half to another), each will require a certificate for their shareholding. However, as we’ve noted before there’s no need to send out multiple certificates for a joint shareholding.

If a company does not issue a share certificate within the timescale noted above, the new shareholder can give notice to the company that it has failed to comply with its statutory obligation to do so.

Can the company issue replacement share certificates?

If a share certificate in respect of a shareholder’s shares is damaged, defaced, lost, stolen or destroyed, the shareholder is entitled to request and receive a replacement share certificate in respect of the shares covered by that certificate.

The process to follow will differ based on whether the shareholder still has the certificate. In another article, we look in more detail at the process of issuing replacement share certificates.

If the certificate is still in the shareholder’s possession, it should be returned to the company. The old certificate can be cancelled and a new one issued as described above.

If they don’t have the certificate, it’s common for the company to request details of the circumstances surrounding its loss. it’s standard practice only to issue a replacement certificate once the shareholder has completed a form of indemnity.

If the old certificate is later found, it should be returned to the company. This condition will form part of the form of indemnity that the shareholder signs.

What is a form of indemnity?

This confirms that the shareholder is the rightful owner of the shares covered by the certificate and indemnifies the company against any related liability that might arise.

In signing the indemnity form, the shareholder is confirming that if someone else is relying on the original certificate that they ask the company to replace, and the company therefore suffers a financial loss, the shareholder will cover their loss. If the amounts involved are large, the indemnity form should be countersigned by a bank, insurance company or trust company. They will usually charge a fee for this because they are agreeing to protect the company if a shareholder cannot meet the cost of the potential financial loss.

The directors can also ask for payment of a reasonable fee for replacement of a share certificate.

What about a shareholder change of name or address?

If a shareholder changes their name, they’ll often request a new share certificate. Before issuing a replacement, the company should request evidence of the name change. This will most commonly be in the form of a marriage or deed poll certificate. Once evidence is received, as well as issuing a replacement share certificate with the amended details, it’s important also to update the register of members with the new details.

It’s not usually necessary to replace share certificates for a shareholder’s change of address. However, the register of members should again be updated accordingly with the new address.

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