#10119 - Transfer Of Shares 1 - Business Law and Practice

1. Shares are transferred if the shareholder who owns them, sells them or gives them to another person p208

2. Under CA 2006 s.544 transfer of Shares is made in accordance with the Co.’s Articles. Thus, Check Articles to see if there is any restriction on transferring shares

3. Under CA ss.770-772/TA23/MA26 transferor completes and signs stock transfer form (STF)(need not be witnessed) one STF per transfer and even if it is a gift

4. The STF and old share certificate (s.768) is given to the transferee who need not sign it unless shares are partly-paid under:

• TA24 The transferee needs to sign

• MA have not provision on transferee signature but it is good practise to have them sign

(if certificate is lost then, as members must be registered in Co.’s Register of Members under s.112(2), the Register is sufficient evidence of share ownership)

(Uncertificated shares = electronic shares)

5. The transferee pays for the shares and gets the STF stamped by the company and pays SDLT if:

   • The value of the shares exceeds 1,000 (therefore, not 1,000 exactly)( if transfer below 1000 SDLT Exempt)

   • 0.5% on the consideration, rounded to the nearest 5 (e.g. if SDLT is 230.50p it is rounded up to 235)

   • But No SDLT if the shares are gifted

   • But No SDLT (Intergroup Transfer) i.e. if transfer of assets between Co.s of the same group

6. Transferee sends his stamped STF and old share certificate to the company to ask for registration

7. Company will approve the transfer (but may not be obliged under the Articles (see Ds’ refusal to register below))

8. Company updates the register of members (CA s.771) and (CA s.112)

9. Company issues new share certificate in transferee’s name within 2 months (CA s.776(1))

10. Company notifies Companies House of all the changes in membership on Form AR01 in their annual return

NOTE There is no statutory pre-emption regime (But articles of the company may provide pre-emption rights)

• By operation of law, the shares vest automatically in his PRs (or trustees in bankruptcy s306 IA) (MA27 / TA29)

• PRs and Trustees are not the legal owners because names are not on the register of members

• MA27 / TA31: PRs and Ts are entitled to any dividends but not the voting rights

• MA28 / TA30: PRs and Ts must produce a grant of representation to deal with the shares(s.774), then either:

  1. Elect to be registered themselves; or

  2. Transfer the shares to a beneficiary (s.77(3))

• CGT, IHT, Corporation Tax are all relevant as this is a disposal of a capital asset

• CGT Reliefs available:

  • Gift of company shares ER (and Annual Exemption) or Hold-over relief

  • Sale of company shares ER (and AE)

  • Sale of share in partnership ER (and AE) or Roll-over relief on a QBA

  • Transfer of unincorporated business to a company ER (and AE) or Roll-over on a QBA

• IHT Reliefs: Business Property Relief

Articles restricting transfer of shares that can be suggested to a company entering into a Joint Venture in order to protect their investment in the JV:

1. A prohibition on all transfer for an initial period to ensure that all the parties are bound to the venture as it gets under way.

2. To allow transfer to other group companies of each shareholder (a useful tool for tax planning purposes)

3. Pre-emption rights; if any party wants to sell within a particular class of shares and if it wants to sell to someone out of that class of share to provide for a re-designation of the class of that share.

4. To specify events that can trigger a transfer of shares in the case of a change of control of a corporate shareholder.

5. To expressly provide for...