The transfer of shares in a UK company to a new shareholder, whether by sale or gift, is very common. Although private companies may expect transfers in their company’s shares to be rare, various circumstances can lead to a share transfer. These include:
- Transfer to a tax-efficient vehicle such as an ISA or pension fund;
- Transferring shares to a spouse (again for tax efficiency);
- Transfer of shares to the member’s children, which may form part of a tax strategy or part of handing over the reins of the business to a new generation;
- An agreement to transfer between business partners;
- Share transfer on the death of an existing shareholder;
- Transfer of shares on divorce, separation or the dissolution of a Civil Partnership;
- As part of a change in corporate structure – for example, the company becoming the subsidiary or associated company of another company; and
- Simply to free up spare cash for other purposes!
Before agreeing to buying shares the purchaser may, particularly if the amounts are significant, wish to obtain a professional valuation and draw up a detailed contract for the purchase. Here we’ll assume that the buyer has satisfied themselves.
We’re also presuming that the shares can be transferred and that no particular restrictions apply. While this will often be true, there are a number of scenarios where shares cannot be transferred or a share transfer is only possible after a prescribed procedure is followed. We cover restrictions contained within a company’s Articles of Association, shareholders’ agreements and other reasons why a share transfer may not be permitted or approved in other articles.
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The transfer procedure in summary is:
1. The seller of the shares completes and signs the stock transfer form
2. Where necessary, the buyer signs the stock transfer form
3. If required, the stock transfer form is sent for stamping and stamp duty is paid
4. The company receives and checks the transfer documents
5. The board of directors decide whether to approve the transfer
6. The company updates its statutory registers, cancels share certificate(s) and issues new certificate(s) required
7. At a later point, the transfer is confirmed to Companies House as part of a confirmation statement (which replaced the annual return from 30 June 2016)
Let’s look at each of these stages in turn, starting in this article with the steps up until the company receives the completed share transfer documentation.
1 The seller of the shares completes and signs the stock transfer form
A stock transfer form is the document usually used for the transfer of shares. You may see it referred to as form J30 or a share transfer form, but it means the same thing.
The person selling the shares (often called the ‘transferor’) should complete their details on the stock transfer form, including their name and address as well as the shares to be transferred, and then sign it. There are some circumstances, like when shares are being transferred on the death of a shareholder, where someone other than the transferor may sign either additionally or instead of the person listed in the company’s register of members.
The name and address of the person or people receiving the shares also needs to be included, although they will not normally need to sign the stock transfer form. It’s important that the so called transferee’s details are correct on the form as this is how they’ll appear in the company’s statutory records.
If more than one class of share is being transferred, a separate stock transfer form should be completed for each class.
We’ve produced a step by step guide to completing a stock transfer form, as well as a free stock transfer form template which you can download and complete. The guide covers the majority of scenarios that may arise and how to show them on the share transfer form.
2 Where necessary, the buyer signs the stock transfer form
We said above that the person receiving the shares doesn’t usually have to sign the stock transfer form. The exception is where shares are unpaid or partly paid: these carry with them a liability for the unpaid amount to be paid to the company when it falls due. The person who obtains the shares via transfer must sign to say they accept that liability, whether they are receiving the shares by purchase or by gift. Unpaid or partly paid shares are transferred using form J10 rather than the standard form J30 used for transfers of fully paid shares.
The buyer should also receive the share certificate from the seller covering the shares to be transferred. They’ll also want to check that the details entered by the seller on the stock transfer form, particularly concerning the number of shares and consideration, match their understanding.
3 If required, the stock transfer form is sent for stamping and stamp duty is paid
Stamp duty is payable by the purchaser of the shares if the consideration value is more than £1,000, whether cash is provided or services or some other form of consideration is provided instead. The person signing the certificate must confirm that the transaction does not form part of a larger transaction or series of transactions which would in total exceed £1,000, so there’s no way to process a number of small transactions in order to avoid stamp duty becoming payable on the full consideration of a transaction.
The current rate for stamp duty is 0.5% of the consideration value and is rounded up to the nearest £5. For example, if £2,600 is paid for some shares, stamp duty will be payable as the consideration is above £1,000. 0.5% of £2,600 is £13, which rounded up to the nearest £5 would mean £15 would be payable in stamp duty.
In a few cases, reliefs will apply which reduce or eliminate the stamp duty payable. More commonly, the transfer may be subject to an exemption. Exemptions cover a whole range of possible scenarios, which are covered in our guide to completing a stock transfer form.
If transfer is exempt from stamp duty it must be certified and signed to that effect on the reverse of the stock transfer form. If the transfer is thus exempt and no stamp duty is payable, there is generally no requirement to send the stock transfer form to HMRC. In that case, the certificate can be sent directly to the company to be processed.
If stamp duty is payable, you’ll first need to send the stock transfer form to HMRC for stamping at the following address (for England, Wales and Northern Ireland):
Birmingham Stamp Office
9th Floor, City Centre House
30 Union Street
To get the transfer stamped, you’ll need to include:
- The completed stock transfer form;
- Payment of the stamp duty, by UK cheque or international money order made payable to “HM Revenue and Customs”; and
- An address for the stamped share transfer form to be returned to.
There’s no need to send the share certificate covering the shares to HMRC and no requirement to send any documents at all to Companies House at this stage.
The deadline for paying the stamp duty due is 30 days after the share transaction takes place. Failure to pay may result in penalties and interest being applied to the late amount.
If the Stamp Office is not satisfied that the consideration stated on the stock transfer form represents the full value of the shares being transferred, it will ask for documentary evidence to support the valuation. However, once satisfied, the Stamp Office will stamp the stock transfer form, showing the amount of stamp duty received or, if no stamp duty is payable, the fact that the transfer has been adjudged as not requiring stamp duty to be paid.
HMRC have a lot of further information on stamp duty on their website, the relevant section of which is available in the stamp duty section of HMRC’s website.
Our next article continues this guide to the procedure for share transfers, picking up at the point the company really becomes involved in the share transfer process.
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