How To Change Shares In A Limited Company

How to transfer company shares
Issuing company shares after incorporation
What is authorised share capital?
Why is authorised share capital no longer a legal requirement?
What are pre-emption rights of existing shareholders?
Directors' power to transfer and allot company shares
- - Directors' power to transfer company shares
  - Directors' power to issuing company shares

Last updated: 3 Nov 2021

Limited companies can issue more shares at any point after incorporation. Likewise, shareholders (members) can transfer or sell their company shares to other people at any time.

In both situations, the procedures must be in accordance with the provisions set out in the Companies Act 2006, the articles of association, and the shareholders' agreement (if applicable).

How to transfer company shares

Limited company shares can be transferred from one person to another in exchange for:

a cash payment
a non-cash consideration such as goods, services, knowledge, or writing off debts
as part of an employee share scheme
as a gift to a family member or spouse

If you wish to transfer or sell shares after company formation, you should begin by completing a Stock Transfer Form. The following details must be provided on this form:

company name
Company Registration Number (CRN)
quantity and class(es) of shares being transferred
name and address of the existing shareholder (transferor)
name and address of the new shareholder (transferee)
amount paid for the shares
details of non-cash payments, if applicable
signature of the transferor
Stamp Duty liability, if applicable.

A copy of the stock transfer form must be delivered to HMRC if the sale value of the transfer exceeds £1,000. The transferee will be liable to pay Stamp Duty tax of 0.5% of the total sale value.

The transfer must then be approved by the board of directors either at a meeting or by way of a board resolution. For some companies, the existing shareholders may also need to pass a special resolution to waive their right to pre-emption on the transfer of shares.

When the transfer is complete, the director(s) must provide a copy of the stock transfer form to the transferor and transferee. The company should retain a copy with its statutory records, which must be stored at the registered office or SAIL address.

The new shareholder must be issued with share certificates as proof of ownership. The statutory register of members should be updated as soon as possible to reflect the share transfer and record details of the new and old shareholders. If necessary, the register of People with Significant Control (PSC register) will also need to be updated.

There is no need to immediately notify Companies House when a share transfer takes place. These changes can be reported on the next annual confirmation statement.

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Issuing company shares after incorporation

Companies may be required to issue new shares for many reasons, such as:

bringing in new business partners
raising capital from outside investors to fund expansion or pay for a new project
to pay business debts
to introduce a bonus scheme for employees
to gift shares to family members

The Companies Act 2006 imposes no legal restriction on the number of shares a private company can issue during or after incorporation. However, it is possible to include certain restrictions in the articles of association and shareholders' agreement, if required. The most common restriction is an authorised capital, which is essentially a limit on the number of shares that can be issued.

To issue more company shares after incorporation, the prospective member(s) must make an application to the company. The existing members should waive their right to pre-emption by passing a Special Resolution (if applicable), and any other provisions described in the constitution should be complied with.

Finally, the allotment should be accepted by the company, which is usually carried out with a board resolution. Once the allotment has taken place, the directors must provide the following details on the Return of Allotment of Shares (Companies House form SH01):

company name
Company Registration Number
date(s) of allotment(s)
number, class (type), currency, and nominal value of each share
amount paid or unpaid on shares
details of non-cash payments, if applicable
Statement of Capital
prescribed particulars (rights) attached to shares
director's signature

Directors are legally responsible for filing Form SH01 at Companies House no later than 1 month after the allotment of company shares. They must also:

provide a share certificate to each new shareholder
retain copies of share certificates at the company's registered office or SAIL address
update the statutory register of members
update the company's PSC register (if applicable)
report the changes to Companies House on the next confirmation statement

What is authorised share capital?

Authorised share capital is an optional provision which can be included in the articles of association. It limits the number and value of issued shares that a company may have at any given time.

Companies formed before 1st October 2009 under the Companies Act 1985 have this provision automatically included in their articles.

Companies incorporated under the Companies Act 2006 (i.e. those formed after 1st October 2009) are free to forgo this provision entirely; however, they can optionally include it in their articles, if they wish.

Why is authorised share capital no longer a legal requirement?

Authorised share capital became optional when Stamp Duty ceased to be payable on authorised capital. When companies were incorporated under the Companies Act 1985, they were required to pay Stamp Duty in relation to their authorised capital.

This was stated in the memorandum and articles of association as a sum of money divided into a quantity of shares of a fixed value. Companies were not required to issue all of their authorised shares, but they were not permitted to issue more than the maximum figure shown in the memorandum and articles.

Stamp Duty on shares is now only payable to HMRC when the sale value of a transfer exceeds £1,000.

What are pre-emption rights of existing shareholders?

Pre-emption rights are provisions that provide existing members with first refusal of any new or existing company shares that become available. The Companies Act provides default pre-emption rights on the allotment of shares, which can be removed from the articles or waived for individual transactions by passing a special resolution.

Whilst there are no automatic statutory provisions for pre-emption rights on the transfer of shares, companies can choose to include such provisions in their articles.

This provision protects members against the unfair dilution of their shares because it enables them to maintain their existing proportion of ownership and control.

Example

You own 25% of the company's issued shares
You must be given the option to purchase 25% of any company shares that become available
If you decline to purchase the shares, they can then be offered to outside investors

Pre-emption rights can also prevent non-members joining a company and potentially harming the status quo or mission of the business.

Directors' power to transfer and allot company shares

The rights and powers of directors, including the power to transfer and allot shares, are outlined in the Companies Act 2006, the articles of association, and any service agreement between the company and director. However, members have the power to alter these rights at any time by passing a resolution.

Directors' power to transfer company shares

Share transfers can usually be authorised by directors. However, due to the impact that transfers can have on members' beneficial rights and controlling interests, directors are sometimes prohibited from authorising transfers without the permission of existing members.

When a director has no power to authorise the transfer of company shares, the members must pass a resolution to either grant such authorisation to the director or permit the transfer on that occasion.

Directors' power to issuing company shares

The articles adopted by any private limited company formed after 1st October 2009 permit directors of companies with a single share class to authorise the allotment of ordinary shares without the approval of the existing members. This power, however, is still at the discretion of members because, under the articles, they have the right to restrict the directors' powers.

If directors are not permitted to authorise an allotment, the shareholders must either pass a resolution to approve the allotment, or amend the articles to grant such power to the directors.

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