In a UK-registered company, shares are often transferred from one shareholder to another. Depending on your business model and how you wish to proceed, you may want to issue, allocate, or transfer shares. So let’s take a closer look into when you would need to transfer shares, some restrictions you would possibly face and how to transfer shares.
What Exactly Are Shares?
In the UK, company shares are usually either allocated during company incorporation, or transferred afterwards at a later date. You may wonder - why do I require shares in my company?
When you first decide to start up your company, there is a big possibility you will be lacking in paid up capital. Allocating shares to shareholders can help to increase your total capital needed for business operations. In exchange, these shareholders own units of equity in your company and are eligible to receive dividends or capital gains if the value of your company rises in the following years.
To put it simply, if you own a share in a company, you are known as a shareholder and own a small portion of that company. If the company does well, you as a shareholder can earn more in terms of dividends and capital growth.
On the other hand, if you start your business all by yourself and all of the start-up capital came from you, you can issue all your company shares to yourself as well.
Company incorporation can either be a simple, straightforward or a tedious and time-consuming one. With the right help from professionals at Osome, you could get your company incorporated within a few hours.
When And Why Would I Need To Transfer Shares In My UK Company?
There are a few reasons as to why you might be considering to transfer shares between shareholders in your company.
The most common reasons include:
- A shareholder has left the company and wishes to sell their shares.
- Some shareholders are holding more than their fair share of shares.
- Transferring shares in exchange for cash payment.
- Exchanging shares for goods or services.
- Selling off shares to write off debt payments.
- An agreement between business partners for share transfer.
- Transferring shares on the death of an existing shareholder.
- Transferring shares if the company changes its corporate structure.
- Gifting shares to family members to pass on the family business.
Transferring Shares For Tax Efficiency
Let’s dive further into how transferring shares can help you be more tax-efficient.
- Transferring shares to a tax-efficient vehicle such as an ISA or pension scheme
When your tax bill on company profits has reached a certain level, you can consider moving your company shares into a pension contribution scheme or Individual Savings Accounts (ISAs). One thing to note is that this is not something that is generally done when you have just started your new company.
You do not have to pay Income Tax on the interest or dividends you receive from an ISA. Any profits from investments done with the ISA are free of Capital Gains Tax as well.
- Transferring shares to a spouse or child to reduce payable tax
Here’s how you can reduce the tax payable by using another vehicle.
Scenario 1: Christopher has maintained his business for a couple of years since incorporation and is the sole shareholder of his company Chris Movers. After all his expenses including a personal wage of £10k a year, Christopher has made £20k in profit. As he is the only shareholder, he keeps the £20k as dividend. However, don’t forget that he is liable for corporate tax.
With the Companies Ordinance, Christopher has a tax-free personal allowance of £5,000 for dividends and he will have to pay 7.5% tax on the rest. This means his tax bill for the year will amount to £1,125 (7.5% x £15,000).
Scenario 2: Christopher transfers half of his company shares to his spouse (or child). In this way, Christopher and his spouse both earn £10k each as dividend. After the £5,000 tax free personal allowance, they each have to pay £375 in tax. This helps to reduce Christopher’s tax from £1,125 to £750 (which means £375 in tax savings).
Restrictions On Share Transfers
Public, private companies and SMEs can place restrictions on the transfer of its shares. This means that existing shareholders, directors and certain third parties have the right to prevent or be notified of any transfer of shares happening in the company. You should not transfer shares without notifying your shareholders.
If there are two or more shareholders in your company, appropriate share transfer provisions should be included in the company’s articles of association and shareholder’s agreements. The reason for this is that shareholders would most probably prefer not to allow a complete stranger to hold shares in the company without their consent, and it is an understandable concern especially since it affects the company as a whole.
These should cover the following as a basic guideline. Provisions can be added based on your company.
- A sale of the any shares
- A gift of any shares
- What happens to the existing shares upon the death of a shareholder
- Directors can have a discretion to refuse any transfer
- Consent of all members needed to do any transfer
How Do I Transfer Shares?
Once you and other shareholders, if any, have come to a unified decision to allow the transfer of shares, here’s how you can transfer your company shares. Do not forget to consult and go through your company’s articles of association and shareholders’ agreements before doing any transfer of shares.
The process can be done electronically if you wish to save time, but can also be done the old fashioned method by printing the forms and then submitting to the Companies House.
Things You Should Require
- Stock transfer form
The stock transfer form should contain details of what transfer you want to perform. This includes the quantity, class and type of shares to transfer, the buyer, the seller, and the value of what the seller paid for the shares in (cash, stock, shares or debt).
- Signatures of involved parties
This confirms that all parties are informed and in consent of the transfer.
- Payable Stamp Duty fee (0.5%) if the value exceeds £1,000
You are unable to do a series of smaller transactions in the hope of avoiding payment of the Stamp Duty fee.
Steps to follow
- Complete, sign and date the Stock Transfer Form
You can use a power of attorney if necessary and e-signatures will be accepted.
- Include electronic versions of any agreements and supporting documents
This should be provided to prove how much Stamp Duty fee you will need to pay.
- Email a copy of documents to the HM Revenue & Customs (HMRC)
From 25 March 2020, all forms should be emailed, and not posted to the HMRC. To complete the transfer request, email a copy of the stock transfer form or instrument of transfer (such as a scanned PDF) to this email.
Here’s a complete guide on the HMRC website on how to get your share transfer process done without hiccups.
If you are looking to transfer your shares, or simply just unsure of how to get your company started in the UK, do not hesitate to reach out to our professional team here at Osome. We help you with the most important aspects of setting up your own company without all the hassle of documents and forms. Of course, if you have already registered your company, feel free to check out the other services we provide, such as e-commerce accounting, bookkeeping and more! Of course, we can help with any other queries you have about your company processes, so chat us up for an instant call back anytime.