How To Transfer Shares In A Limited Liability Company
A transfer of shares, also known as a stock transfer, is the process of changing ownership of shares from one shareholder to another in a private limited company. This is a standard operation; however it requires considerable attention to be executed properly, given its importance.
In What Circumstances Do You Need A Transfer Of Shares?
A transfer of shares can be caused by a number of different circumstances. If a shareholder leaves the company, retires, or dies, you will need to perform such an operation. It is worth knowing what the legal steps are when faced with such an issue.
How Do We Make A Share Transfer?
In the UK, a transfer of shares is made through a stock transfer form. The stock transfer form will usually be filled in by the leaving shareholder, known as the transferor (or more often their lawyer on their behalf). Once the stock transfer form is signed, it will be handed over to the transferee (the person receiving the shares) and a share certificate will be issued. A payment will be made at this point, if required. The transferee will then fill in the necessary sections of the stock transfer form, including any relevant tax information.
A stock transfer form must contain the following information:
- Company details
- Consideration (what is being given in exchange for the shares)
- Share type and value
- Current shareholders
- Future shareholders
- Stamp duty declaration (if needed)
“A share sale is typically more complicated than when just assets are being sold, since with shares you are selling not only the assets, but all the liabilities of the company too.”
– Jonathan Lea
What Is A Stamp Duty And Do I Have To Pay It?
A stamp duty tax is owed if the transfer of shares also involves a transfer of money or value. If money or value is paid, you will be liable to pay stamp duty, unless the transfer is valued at less than £1,000. If the value is less than £1,000, you will need to complete an exemption certificate, but you don’t have to notify HMRC about the transaction.
Where the value is more than £1,000, you are required to pay stamp duty tax at 0.5%, rounded up to the nearest £5 on each document to be stamped. That means that if the value of transfer is £1,990, your stamp duty will be £1,990 x 0.5% = £9.95. Rounded up means that you will have to pay £10 in this case.
What Are The Next Steps?
When a stamp duty is owed, you need to send the stock transfer form together with the payable amount to HMRC. The completed and stamped form will then be forwarded by the transferee to the transferor. In case no stamp duty is owed, the stock transfer form will go directly to the transferor.
When the documents are received, the company must cancel the old share certificate and update its register of shareholders. A new transfer certificate is then to be issued to the transferee within two months of the transfer.
You don’t need to send the form or notify Companies House about the transfer, as it will be included in the next annual return of the company.