TRANSFER OF SHARES
General
A company must not register a transfer of shares or debentures unless:
- a proper instrument of transfer, stamped with the appropriate duty, has been delivered to the company; or
- the right to the shares has been transmitted by operation of law (e.g. where they are inherited on the death of the holder) (s183 CA 85).
Save for a listed company, a company's Articles of Association may restrict the right of a member to transfer his shares and may require him, in specified circumstances, to offer his shares for sale. Normally, such provisions would prohibit him from transferring his shares to an outsider at a given price unless existing members have been given an opportunity to purchase the shares at the same price and such remaining members have refused to purchase the shares. Where a company's Articles contain such a provision either the procedure laid down must be followed or a Special Resolution passed by the members relaxing the pre-emption provisions in respect of a specific transfer(s).
Stamp duty on transfers of shares is usually payable by the purchaser and is at the rate of 0.5% per hundred or part thereof unless reliefs or exemptions apply. Stamp duty is subject to a minimum of £5 per transfer, thus a transfer of 999 shares would not be subject to any stamp duty. Each further 0.5% is rounded up to the nearest £5.
Form of Transfer
The Articles usually state that:
- transfers must be in writing in any usual form or any other form which the directors may approve; and
- the directors may refuse to recognise an instrument of transfer unless it is in respect of only one class of share and it is not in favour of more than four transferees.
The transferor is deemed to remain the holder of the shares until the name of the transferee is entered in the Register of Members. Legal ownership of a transfer of shares is not complete until the latter of:
- the date that the stock transfer form is signed;
- the date of the Board Meeting registering the transfer; or
- the date the stock transfer form is stamped.
Transfer by companies and other bodies corporate should normally be executed under their common seal or executed as a deed on behalf of the Company by a Director and the Company Secretary or by two Directors. Transfer under seal is not required but is sometimes preferred for the sake of appearance.
After a transfer has been registered the old share certificate should be cancelled. The old share certificate and the stock transfer form should be carefully retained by the company, unless there is authority in the Articles to destroy them after a specified period.
The new share certificates should be ready for delivery within two months from when the transfer is lodged with the company unless:
- the terms on which the shares were issued otherwise provide; or
- the transfer is to a stock exchange nominee
Non market transactions are ones where the stock exchange is not involved and which do not relate to a sale or disposition for value.
The transfer form is executed by the transferor. If the shares are nil or partly paid, the transferee will also sign the transfer form.
The transfer form and the relevant share or debenture certificate(s) are delivered to the transferee who usually arranges for the transfer form to be stamped (if necessary). If the transfer is exempt from stamp duty or is not subject to ad valorem duty then the relevant section of the transfer form must be signed and completed by either the transferor, a solicitor or a person who has knowledge of all the facts.
The transfer form and the relevant share or debenture certificate(s) are then lodged with the company for registration.
If the transfer appears to be in order it is then presented to the board of directors to approve registration of the transfer, the cancellation of the old share certificate and the issue of a new share or debenture certificate in the name of the transferee(s) and, if necessary, a balance certificate to the transferor.
The appropriate entries are made in the register of transfers, the register of members and, if necessary, the register directors' interest.
The transfer procedure in summary is:
- Complete or print the stock transfer form
- Transferor signs the form
- The transfer form and the relevant certificate(s) are delivered to the transferee
- The transfer form is, if necessary, stamped
- The transferee lodges the transfer form and the relevant certificate(s) with the company
- The board of directors approve the transfer
- The registers are updated, the old certificates are cancelled and any new certificates issued