Issue, Transfer & Transmission of Shares Explained
Allot and Issue
Although there is a technical legal distinction between the terms ‘allotting’ and ‘issuing’, both terms are often used interchangeably to describe the whole process by which a shareholder takes shares in a company. A shareholder will be given a signed share certificate and have their names written into the register of members. The company will usually receive money for the new shares. A share issue can be a great way of raising finance for a company. Non-cash consideration may be accepted if the board of directors agree. This is less usual.
The directors need to obtain permission from the shareholders to allot new shares and disapply statutory pre-emption rights. Issuing new shares changes the ownership proportions in a company. This in turn may change the existing shareholders’ voting and dividend percentages. Shareholders who hold more than 25% are known as people or businesses with significant control and they must be recorded at Companies House.
For these reasons we often recommended that shareholders consider limiting the right to issue shares or insist that shareholder consent be obtained first to avoid surprises for the existing shareholders. These rights will be contained in the company’s constitution. They may be in the articles or potentially a shareholder’s agreement.
Transfer of Shares
Shares are transferred where a shareholder sells or gifts their shares to another person. The shareholder giving the shares is usually called the Transferor. The person receiving the shares is the Transferee.
A board meeting is usually held and the transfer of shares is recorded and approved in accordance with the company’s constitution. The Transferor will also complete and sign a stock transfer form. If the shares are sold for more than £1,000, the Transferee will be required to pay stamp duty on the monies paid for the shares. Stamp duty on share transfers is currently 0.5%. Stock transfer forms are usually held by the company. The Transferee will receive a signed share certificate and have their name entered into the register of members.
Legal ownership of the shares is transferred once the Transferee is registered in the company’s register of members as the owner of the shares. The recent 2024 case of Bland v Keegan highlighted the importance of keeping an accurate register of members. In this case, the register was treated as evidence of who the members were even where there had been a fraudulent transfer.
A shareholder can transfer their shares to whoever they want, UNLESS there are restrictions in the company’s articles of association. Unless given power under the articles, the Companies Act provides that a director cannot refuse to put a new shareholder’s name on the register. This freedom is not normally welcomed by the existing shareholders. It can fundamentally change the dynamics of the company. The shareholders and directors are powerless to stop it without supporting powers being added into the articles.
Transmission of Shares
Transmission is the name for an automatic process which occurs in two circumstances:
- When a shareholder dies and their shares pass to their personal representatives; or
- When a shareholder is declared bankrupt and their shares pass to their trustee in bankruptcy.
Subject to the company articles, and pending any transfer of the shares to another person, the personal representatives or the trustee have the same rights as the holder had however they cannot vote at shareholder meetings.
The personal representative must provide the company with a grant of representation to establish their right to deal with the shares as part of the deceased’s estate. If the articles are silent on what the personal representative should do, the personal representative can either transfer the shares to the ultimate beneficiary, a third party or even elect to be registered as the shareholder themselves. It is therefore very important that shareholders consider the death of a shareholder and what will happen to the shares.
A trustee in bankruptcy can also elect to be the registered holder themselves, although they will likely look to sell the shares straightaway. As a result of the budget, shares in a trading company may now trigger a charge to inheritance tax of 20% if the shares are worth more than £1,000,000 and they are not being transferred to a spouse. This is a big change, as previously the shares would have remained outside of the taxable estate. If the shareholding of the company grows to the point that a tax charge may arise, we would recommend you take appropriate advice to potentially avoid triggering this unwanted tax liability.
Contact us
If you are interested or concerned about the how transmission occurs, or the transfer and issue of shares in your company, please feel free to contact HSR Law for advice and assistance.
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