Transferring shares in a limited company

Lawpack on March 27, 2020

If you need to transfer shares from one limited company shareholder to another, you will need to complete a stock transfer form, in accordance with the Stock Transfer Act 1963.

The stock transfer form must be signed by both of the parties involved in the transfer and a copy should be kept on record.

Lawpack provides a stock transfer form template that has been drafted by solicitors for straightforward completion and contains all the information required.

What is a share transfer?

A share transfer, or a stock transfer, allows you to shift the legal ownership of company shares to someone else.

There are a number of reasons why you may need to transfer shares. For example, one shareholder may be leaving the company, while another may retire.

Similarly, in the event of a shareholder’s death, their stock holdings may be transferred to another person.

How is a share transfer made?

A share transfer is made by means of a stock transfer form, which can be downloaded through Lawpack’s website.

Typically, the current shareholder will fill in the form, providing details of the shares to be transferred.

Once it is signed, it will be handed over, together with a share certificate to the transferee. Payment, if necessary, will be made at this point.

The transferee will then complete the relevant sections of the stock transfer form, including any information required on tax.

Do I need to pay stamp duty?

This depends on the circumstances involved in the transaction. If no money or value is paid for the transfer, then you will not be liable for stamp duty.

If money or value is paid, then stamp duty will apply, but only if the transfer is valued at more than £1,000.

This applies to any legal forms used on or after March 13th 2008.

If the value falls below this, then an exemption certificate must be completed.

Transfers valued above £1,000 are subject to stamp duty at 0.5 per cent of the price paid for the shares. This will be rounded up to the nearest £5.

So if you were to transfer shares for £10,000, stamp duty of £50 would need to be paid (£10,000 x 0.5 per cent = £50).

Stamp duty on share transfers has a minimum value of £5. So if the amount payable is less than this amount, then you will still have to pay £5.

What happens next?

If stamp duty is to be paid, then the stock transfer form must be sent along with the correct fee to HM Revenue and Customs, where it will be stamped.

This fee must be sent in the form of a cheque or international money order made payable to HM Revenue and Customs.

The completed and stamped form and the share certificate must then be forwarded by the transferee to the transferor. If no stamp duty is payable, the stock transfer form will be sent straight to the transferor.

Upon receipt of the documents, the company whose shares are being transferred will cancel the old share certificate and update its register of members.

It will also record the details of the transfer and issue a new certificate to the transferee within two months of the date the transfer was lodged.

There is no need to send a form or give notice to Companies House, as this will be included in the next annual return filed for the firm.

Circumstances in which a stock transfer may take place

As mentioned, a stock transfer may take place in a number of circumstances.

If a shareholder dies, their shares and the associated rights must be given to a personal representative or executor.

This individual will either register themselves as a member or transfer the shares directly to the beneficiary named in the deceased’s will.

Similarly, if a shareholder is declared bankrupt, their shares will be moved to a trustee who will again register as a member or sell on the shares directly.

If a shareholder leaves the company or retires, an agreement on what to do with their shares must be reached.

Shares can be bought back by the company and redistributed among the remaining shareholders, or they could be transferred to a single individual.

What information should a stock transfer form contain?

A stock transfer form from Lawpack will contain the following information:

  • Consideration
  • Company details
  • Share type and value
  • Current shareholders
  • New shareholders
  • Stamp duty declaration

Our stock transfer form template is suitable for use by companies registered in England, Wales and Scotland.

It is not lawful for a transfer of shares to take place without the necessary paperwork and procedures. ADNFCR-1645-ID-800572652-ADNFCR

Further information

 

External information

The limited company records you need to keep

Lawpack on March 27, 2020

When running a limited company, you must maintain certain records about the company’s meetings, directors and shareholders. These are known as ‘statutory books’.

Statutory books are kept for the benefit of the shareholders and the general public.

The limited company records you must maintain are as follows:

  1. Register of Members.
  2. Register of Directors.
  3. Register of Secretaries (if a company secretary has been appointed).
  4. Register of Directors’ Interests. This records the limited company directors’ interests in shares or debentures of the company and its associated companies together with any interest of a spouse or child. This document is optional.
  5. Register of Charges. This records charges (i.e. financial liabilities or commitments) over the property of the limited company.

Each of the registers should be kept at the limited company’s registered office – although you can keep them at another location, in which case file Form AD02 – or, in certain circumstances, at another address within the country of incorporation; Companies House does require to be notified if certain registers, such as the register of members and the register of directors’ interests are kept outside the registered office.

Shareholders can inspect the statutory books free of charge, but the limited company may charge anyone else a nominal fee.

The limited company must also maintain accounting records. Your accountant will be able to advise you on the accounting records which need to be kept. In addition, copies of the directors’ service contracts, if any, and copies of any charges (loans secured on the company’s assets) must be kept by the limited company and be available for inspection to any member of the limited company.

Must the limited company have a minutes book?

A company minutes book is a record of board and shareholder meetings and can take the form of a file.

You are legally required to keep a minute book. Board meetings and shareholder meetings must be fully recorded in writing.

Written company resolutions must also be noted in a minute book.

Company minutes must be signed by a limited company director or chairman and filed in the minute book.

Remember that the limited company must maintain a continuous and up-to-date record of all its actions approved by shareholders and/or directors.

Get example templates for all your company minutes and resolutions.

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The role of limited company directors

Lawpack on March 27, 2020

When you form a limited company, your role as company director is to promote the success of the limited company and to manage the limited company on behalf of the shareholders.

Company directors have extensive powers to manage the limited company, which are delegated by the shareholders in the Articles of Association. But shareholders can dismiss limited company directors by passing an ordinary company resolution at a shareholders’ meeting.

Shareholders holding a simple majority (either alone or collectively with other shareholders) of the issued shares of the company will be able to remove a director and control the board. This is providing that 28 days before the shareholders’ meeting, notice has been given to the limited company of the resolution, and the limited company in turn has given the members notice of the resolution 21 days before the shareholders’ meeting.

When managing a limited company, directors are obliged to act in good faith and in the best interests of the limited company.

They must avoid placing themselves in a position where there is, or could be, a conflict between their personal interest and their duty to the limited company. They must exercise skill and care in their role as limited company directors.

Company directors’ duties are now set out in limited company legislation. A company director’s general management duties are to:

  • Act in accordance with the limited company’s constitution and exercise their powers for proper purposes
  • Act in a way to promote the success of the limited company for the benefit of the members as a whole
  • Exercise independent judgment
  • Exercise care, skill and diligence
  • Declare to the other company directors the extent of any interest in a proposed transaction or arrangement with the limited company

In addition, a limited company director must avoid conflicts of interest and must not accept benefits from third parties.

Sometimes the limited company directors and shareholders are the same people, although there is no requirement that they should be.

Shareholders can, with the Court’s consent bring a derivative claim on the limited company’s behalf against a company director who is in breach of his/her duties or is negligent.

Limited company directors and board meetings

Generally, the company directors manage the limited company and decisions will be taken at board meetings.

Limited company management legislation sets out rules on how limited company board meetings should be run:

Board Meeting Rule #1

The Articles of Association are likely to specify that at least two limited company directors must be present at board meetings (unless there is only one director, when that person will form a quorum).

Board Meeting Rule #2

All the limited company directors in the UK must receive reasonable notice of a board meeting. Company resolutions are passed by a majority of the company directors at the board meeting.

Board Meeting Rule #3

A record of board meetings must be kept. The record is known as ‘board minutes’.

Board Meeting Rule #4

If the directors don’t wish to hold a board meeting, they can pass a written company resolution, provided that all the directors sign that company resolution.

The company resolution is dated when the last director signs it and it’s entered in the board minutes book.

In practice, the day-to-day management of the limited company will be delegated by the board of directors to one or more of them, so that it’s unnecessary to hold board meetings on many matters.

But certain company management activities will require the company directors to act collectively in a board meeting (e.g. issuing shares to shareholders).

Appointing limited company directors

The first company directors are named in the limited company formation documents (Form IN01) filed with Companies House. The company directors are appointed on incorporation of the limited company (i.e. the date on the Certificate of Incorporation).

Additional company directors may be appointed by either the board of limited company directors or the shareholders.

Anyone can be a limited company director so long as they have not been disqualified, are not an undischarged bankrupt, and are over 16.

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Issuing shares and share certificates

Lawpack on March 27, 2020

Once you receive a Certificate of Incorporation from Companies House your limited company is incorporated and you, as limited company directors, are free to start issuing shares and share certificates.

To discuss and agree on how you are going to issue shares and share certificates you will need to hold a meeting of all the limited company directors (called a ‘board meeting’). All board meeting decisions must be recorded in writing (called ‘board minutes’). Or, alternatively, all the limited company directors can sign a written resolution.

Issuing shares

The limited company directors should allot and issue one share of £1 each to each of the subscribers to the Memorandum of Association. If you have more than one company director, a majority of the limited company directors must agree to issue shares at the board meeting.

When you’re issuing shares, you don’t need to notify the allotment of the subscriber shares to Companies House. Companies House must be notified within one month of the allotment of any further shares.

Notification of the issue of shares is given by completing and filing Form SH01. You should complete yours according to your own requirements.

A Register of Members should be completed by the company secretary or a company director (if you have no company secretary) to show the one or two subscribers as members of the company.

If the limited company is a single-member company, the Companies Act requires that a statement to this effect be made in the Register of Members.

This statement normally reads as follows: ‘In accordance with company legislation the company has become a one-member private limited company with effect from [insert date] with the sole member being [insert name and address of member].’

Article: Issuing shares: Q&As

Issuing share certificates

To provide the shareholders with a title document to their shares, you will need to issue share certificates at the first board meeting. Each share certificate must include the following:

  • A share certificate number
  • The number of limited company shares
  • The name of the limited company
  • The name of the holder
  • The address of the holder
  • The number and type of limited company shares issued to the holder
  • The nominal value of the limited company shares
  • A statement of the extent to which the limited company shares are paid up

If your limited company has a company seal, this can be stamped on the share certificate in the presence of either:

  • Two limited company directors; or
  • One director and the company secretary; or
  • One company director, if you have just one company director and no company secretary.

If you don’t have a limited company seal, the share certificate can merely be signed by:

  • Two limited company directors; or
  • One director and the company secretary; or
  • One company director, if you have just one company director and no company secretary.

The share certificate should be dated on issue.

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The pros and cons of forming a limited company

Lawpack on March 27, 2020

Limited companies are among the two most popular types of company chosen by UK business people, with the sole trader route the other main avenue.

The first step for anyone setting up a limited company is to register it with Companies House, which oversees the registry of companies.

Company registration matters are enshrined in the Companies Act 2006, with Companies House an executive agency of the Department for Business, Innovation and Skills.

Currently, there are more than two million limited companies registered in Great Britain, with over 300,000 new firms incorporated every year.

Under the Companies Act 2006, each limited company must have at least one director. However, having a company secretary is no longer mandatory.

Business owners are often unsure about which entity to trade as – sole trade, partnership or limited company.

There is no legal obligation for companies to trade using a particular entity, but there are differences between them. Here we outline the pros and cons of limited company incorporation.

What are the advantages of forming a limited company?

Status

The term ‘limited’ gives the company a bit more weight so it appears to hold more esteem and seems bigger, both for potential investors and consumers.

Investors

Investors are more inclined to take a chance on limited companies as their investment has more protection than a sole trader or partnership.

Under a limited company, the investor’s liabilities are also limited to their shareholding, thus giving them more security than other companies offer.

Security

As such, banks also tend to favour limited companies and they are given the chance to take out extra security by lodging a ‘floating charge’ over the company’s assets.

That means that if the terms and conditions of the loan are breached, the bank has the first claim on the assets.

Shares

Provided there are no unusual clauses in the shareholder’s agreement or company’s articles, transferring shares in a limited company is generally easier and more straight-forward than it would be in a partnership or sole trader.

Dividends

The dividends of a limited company are not subject to national insurance and are at a lower rate of tax than self-employment income.

Effective tax rates

If you intend retaining some of the profits within the business, then it might be best to go limited as this reduces the tax rate.

Despite these positives, there a number of cons to keep in mind.

What are the disadvantages of forming a limited company?

Liability

Banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company’s debt.

Administration

Directors are also expected to deliver statutory documents to Companies House, so anyone failing to do this is subject to late filing penalties and could be deemed to have carried out a criminal offence.

Less privacy

Becoming a limited company means accounts and other details are held on public records so anyone, including competitors, can access company information, although it can be restricted.

Withdrawals

Making withdrawals from the company can also pose a problem in terms of tax as it is difficult for shareholders and directors to separate their finances from those of the business.

Accountancy fees

One expense bound to be higher for limited companies is the accountancy fee as reporting requirements tend to be bigger.

With all this in mind, it is worth remembering that limited company incorporation can be a profitable prospect, so why not read Lawpack’s practical guide on How to Run a Limited Company?

Written by HM Williams Chartered Accountants, this detailed guide is packed full of information and expert advice on the legal duties and formalities that must be followed when incorporating a company.ADNFCR-1645-ID-801387379-ADNFCR

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Annual General Meetings (AGMs)

Lawpack on March 27, 2020

There is now no longer any legal need for a limited company to hold an Annual General Meeting (AGM), unless the limited company’s Articles of Association require the company to do so.

This means that, unless the limited company’s Articles of Association says that you, as a limited company director, must hold an Annual General Meeting, if you don’t wish to hold one, there is no action you need to take. But, as limited company directors, there is nothing stopping you from holding AGMs if you want to.

Where the Articles of Association require AGMs of shareholders to be held, they must be held within 18 months of the limited company’s formation and thereafter annually, with no more than 15 months between each Annual General Meeting.

Traditionally, the AGM is the medium used to lay the annual accounts and directors’ and auditor’s reports before the shareholders, and to deal with other matters such as the re-election of any company directors retiring by rotation and the annual appointment of auditors.

Under the Companies Act 2006 the annual accounts no longer need to be presented to the shareholders in a meeting and can be sent to the shareholders instead.

The annual accounts must either be presented to the limited company members at a general meeting, or sent to the members within nine months of the end of the year end, or if earlier, the date of filing with Companies House. Related Articles:

How to call and run a shareholders’ meeting

Lawpack on March 27, 2020

When you’re managing a limited company, most of the day-to-day running of a limited company is carried out by you and the other company directors. So you won’t really need to worry about holding shareholders’ meetings, unless a very important issue arises.

Occasions when you may need to hold a shareholders’ meeting are if issues arise concerning capital or changing the limited company’s constitution, which are issues decided by the shareholders.

In some cases directors and shareholders of a limited company will be the same people.

Limited company shareholders act officially as a group. This means that you can either call or arrange for the shareholders to sign a written company resolution or respond to an email.

Certain rules and procedures have to be followed in order to call and conduct a shareholders’ meeting:

Notice given for a shareholders’ meeting

Shareholders must receive advance warning of shareholders’ meetings:

  • Each shareholder entitled to attend the shareholders’ meeting must receive notice of all shareholders’ meetings. Each shareholder should be notified of the date, time and place and full details of the proposed company resolution to be considered at the shareholders’ meeting. The notice may be sent by post or electronically. If the details are shown on the limited company’s website, the shareholder must be sent a letter or email drawing his/her attention to it.
  • Each shareholder must receive his/her own notice of the shareholders’ meeting. The length of notice is now 14 days.
  • It’s possible for shareholders’ meetings to be held at short notice, provided the requisite majority of shareholders have consented to short notice. This consent must be recorded and signed in writing.
  • In most cases you will be able to hold the shareholders meeting immediately if you obtain the shareholders’ consent to short notice. (An example template of the Consent to Short Notice Form is included in Lawpack’s Limited Company Formation Kit.)
  • Consent to short notice may be given:
    • in the case of an annual general meeting (AGM), by all the limited company members entitled to attend and vote at the shareholders’ meeting; and
    • in the case of general meetings, by a majority in number of the limited company members holding not less than 90 per cent in nominal value of the shares and having the right to attend and vote at the shareholders’ meeting.

Shareholders’ meeting proxy

Each limited company shareholder may appoint someone to attend the shareholders’ meeting on their behalf (a proxy), if they’re unable to attend. The proxy may attend and speak at the shareholders’ meeting and vote on a poll on the shareholder’s behalf. The proxy may now vote on a show of hands.

The notice calling the shareholders’ meeting should inform shareholders that they are entitled to appoint a proxy to attend, speak and vote in their place and that the proxy need not be a shareholder.

The proxy form must be lodged with the limited company within a specified period before the shareholders’ meeting is held (this period cannot be longer than 48 hours).

Shareholders’ meeting quorum

Shareholders act collectively, and not individually, so a certain number of shareholders must be present before a shareholders’ meeting can be held. This is known as a ‘quorum’. Normally, a minimum of two shareholders present either in person or by proxy constitutes a quorum. But in the event of the limited company only having one shareholder, s/he will not unnaturally form a quorum.

Company resolutions are passed by a majority of the shareholders at shareholders’ meetings.

Voting at a shareholders’ meeting

Shareholders vote to make their collective decisions. The vote which takes place at the shareholders’ meeting can be made in one of two ways:

  1. On a show of hands — every shareholder present at the shareholders’ meeting in person is entitled to cast one vote. Proxies are now entitled to vote on a show of hands.
  2. On a poll — every shareholder present at the shareholders’ meeting shall be entitled to cast one vote for every share held. Proxies can vote on a poll.

The number of votes required to pass a particular item depends on whether the company resolution is an ordinary resolution or special resolution.

Ordinary company resolutions

Ordinary company resolutions proposed at a general meeting must be approved by a simple majority (i.e. more than 50 per cent) of the votes cast at the shareholders’ meeting, whether by a show of hands or on a poll.

Two examples of many types of limited company business which must be approved by ordinary company resolution include:

  • Declaring a bonus issue.
  • Removal of a limited company director.

Special company resolutions

Special company resolutions must be passed by a three-quarters majority of the votes cast at the shareholders’ meeting, whether by a show of hands or on a poll.

Examples of limited company business which must be approved by special company resolution are:

Some ordinary company resolutions and all special company resolutions must be filed at Companies House within 15 days of being passed. Sometimes forms and fees must also accompany the company resolutions.

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