When ownership of a company changes, a share transfer generally occurs, and the relevant documents prepared and procedures undertaken to record that movement of shares.  Whilst a share transfer can be a very straightforward exercise, it can also be very complex depending on the particular provisions in the articles of association of the company and can involve many factors which are often overlooked when attending to the change of ownership.

A share transfer occurs when a duly executed stock transfer form is delivered to the company at its registered office and the transfer is recorded in the register of members.

How do I offer my shares for sale?

One main principle of ownership in a private limited company is that shares cannot be offered for sale to the public.  As such, the shares tend to be held by those who have an interest in the business and success of the company and can include founder shareholders, directors or their family members.  When a party wishes to sell shares, there can be extensive transfer provisions to follow to ensure that the remaining shareholders can preserve their proportionate shareholding in the company, including giving them the ability to acquire any sale shares by virtue of any pre-emption rights they may hold.  It’s essential when considering the sale of any shares held in a private company that the articles of association are consulted to determine the exact procedure for dealing with an offer for sale.

Once it is clear who will be acquiring the shares, whether that be an existing shareholder or an independent third party, a stock transfer form is prepared by the seller of the shares (the transferor) who delivers the form, along with their share certificate, to the purchaser of the shares (the transferee) who is then responsible for organising the stamping of the form with any stamp duty due to be paid.

What is a duly executed stock transfer form?

A stock transfer form is executed once it has been signed and dated by the transferor, has had any certificate on the reverse completed and signed by the relevant parties, and has been stamped with any duty payable by HMRC.  This is usually the main cause of delays in the ability to register a share transfer, as forms which have not been stamped with the necessary duty cannot be recorded in the statutory registers.

The stamp office can take around two weeks to stamp and return a stock transfer form to the presenter and it is important to note that, during this time, the registered holder of the shares continues to be the seller.  Whilst the seller’s name is recorded in the register of members, they are entitled to any economic benefit attached to the shares, and will continue to do so until the transfer is registered and the purchaser is entered into the register.

When do I become the registered owner of the shares?

The legal ownership of the shares transfers upon entry of the transferee in the register of members of the company and there is a requirement for transfers to be registered within two months of such a transfer being lodged with the company.

A related question which is often asked is “what date do I register the transfer in the statutory registers”?  The answer is often one which is the least considered and that is “the day in which the entry is physically made”.  Once a transfer is approved by the board (if required), the board will generally instruct those responsible for maintaining the statutory registers of the company to update the records to reflect the change in ownership.   Whilst there will be various dates in play (the date the form was signed, the date the board approved the transfer, and the date of the stamp applied by HMRC), the date which really matters here is the date that the entry is made into the statutory registers.  Generally the date of the stamp will be the earliest possible date to entry the transfer and most commonly the date in the statutory registers will be a date after the date of the stamp.

When do I get my share certificate?

Once a transfer is approved, the board of directors will usually approve the preparation and issue of a new share certificate to the transferee.  There is no requirement for the certificate to be issued after the registration of the transfer and it’s often common in practice for the certificate to be issued whilst the stock transfer form is away to the Stamp Office for stamping, although the board may make the issue of the certificate conditional on entry in the register of members.

Considering the People with Significant Control register

Upon the transfer of shares in the capital of the company, there exists potential for the details within the PSC register to change.   The transferee, transferor and the company each have an obligation to consider the impact of the share movements on the content of the PSC register, given that the transferor may have ceased to be a PSC, the transferee may have become a PSC and the company has an obligation to update the register within 14 days of being aware of a change in PSC.

What can go wrong?

When reviewing registrations of share transfers, for example in an M&A due diligence exercise, we see many common issues occur including:

  • Transfers being registered without a duly stamped stock transfer form
  • Deficiencies in the signing of the stock transfer form
  • Failure to consider relevant transfer provisions in the articles of association
  • Failure to execute the relevant certificates on the reverse of the form where applicable
  • Failing to return a share certificate (or indemnity) with the stock transfer form
  • Failing to consider the impact on the PSC register
  • Failing to issue a share certificate to the transferee

In reality, it is often the company solicitors who will be involved with the co-ordination of the execution of the forms and stamping etc, which should give a level of comfort that the process will be dealt with in an appropriate fashion, with all the necessary steps and considerations given as required.

While share transfer requirements can be detailed and involved, by following steps set out in the articles of association, and having appropriate documents delivered to the company/stamp office at the correct stage of the transfer process, the movement of shares can be recorded, and share certificates issued, in a relatively short time frame, ensuring up to date member information within the statutory registers of the Company.