How to transfer shares in a private limited company (UK): the eight-step procedure

Transferring shares in a private limited company is an eight-step procedure. The seller signs a stock transfer form, the buyer deals with stamp duty, the directors approve the transfer, the company updates its registers and issues a new certificate, and Companies House is notified. None of it is difficult on its own, but the steps have to happen in order. This is the process I follow, using the document pack I give to clients (documents A to F).

The eight steps in summary:

• Step 1: the seller completes the stock transfer form.
• Step 2: the seller gives the buyer the stock transfer form and the share certificate.
• Step 3: the buyer pays stamp duty, if it is payable.
• Step 4: the buyer sends the stock transfer form to HMRC for stamping, or completes Certificate 1 if no stamp duty is due.
• Step 5: the directors approve the transfer in board minutes.
• Step 6: the company updates its statutory registers.
• Step 7: the company issues a new share certificate to the buyer.
• Step 8: the company updates Companies House.

Steps one to four sit with the seller and buyer. Steps five to eight sit with the company and its directors.

How to fill in a stock transfer form

• Step 1: the seller completes the stock transfer form. The stock transfer form is document E in the pack. The information the seller needs to input sits in square brackets, and I have highlighted it so nothing gets missed.

Working down the form:

• The name of the company whose shares are being sold, and its registration number as shown at Companies House.
• The type of share being sold. Typically it is an ordinary share of £1 each.
• The nominal value of the share, which is typically £1.
• How many shares are being sold, for example 50, written in words and then in figures.
• The seller's details. The seller then signs and dates the form.
• The name and address of the buyer.

Nominal value vs market value of shares

The nominal value on the form is not the price. The nominal value is fixed by the company when the shares are issued, and if you are the founder you will see it in your company's information at Companies House.

The market value is different. It varies with the market and with the valuation of the company, which can go up and down, and in a private company it is typically just whatever the buyer and seller agree: how much the seller is willing to sell for and how much the buyer is willing to pay.

Lost share certificate? Use an indemnity

• Step 2: the seller hands over the stock transfer form and the share certificate. The seller gives both to the buyer. The certificate matters because it is the seller's evidence that they own the shares they are selling, and the company will want to see it before it registers the buyer as the new owner.

It is very possible the seller has lost their share certificate, or was never given one, for example because the company is small and did not know of the legal requirement to produce share certificates. In that case, complete document A, the share certificate indemnity. In short, it stands in for the missing certificate. As always, replace the text in square brackets with your information.

How much is stamp duty on shares?

• Step 3: the buyer pays stamp duty, if relevant. Ideally the buyer takes their own tax advice on this. Generally, a buyer needs to pay stamp duty if the purchase price for the shares is more than £1,000. If the price is £1,000 or less, the buyer typically does not pay stamp duty, skips step four and goes straight to step five.

Assuming the price is more than £1,000 and stamp duty is payable: at the time of recording, stamp duty on shares is 0.5% of the purchase price. The buyer finds HMRC's bank account details on the government website and sends the money using a payment reference, which is typically made up of the buyer's name and the amount of stamp duty paid. Check the current rate and bank details on the government website before paying, as both can change.

Sending the stock transfer form to HMRC

• Step 4: email the stock transfer form to HMRC. Once the buyer has paid, they email HMRC attaching the stock transfer form so HMRC can stamp it and send it back. Document B is a template email for this. It includes the payment reference used when sending the money, the subject line and the specific information HMRC needs, and the pack also contains a completed example as if I were buying shares for £60,000. Make sure the signed stock transfer form is attached when the email is sent.

No stamp duty? Certificate 1 explained

If no stamp duty is payable, the buyer instead completes Certificate 1 on the stock transfer form. It is on page two of the form. The buyer adds their full name, signature and the date of signature, and then holds on to the form.

Either way, before the form goes to the company it must be either stamped by HMRC (if stamp duty was payable) or carry a completed Certificate 1 (if it was not).

Board minutes to approve a share transfer

• Step 5: the directors approve the transfer. The buyer presents the stock transfer form, together with the share certificate the seller gave them, to the directors. The directors meet to approve the transfer from the seller to the buyer, and the approval is evidenced in board minutes, document C, which record the decisions taken by the board. Replace the square brackets with your information.

How to update the statutory registers

• Step 6: update the internal registers. Document F is a template for the statutory registers. In short, it is a spreadsheet recording important information about the company: who the members (the shareholders) are, who the persons with significant control are and who the directors are. The register of members is updated to show the buyer in place of the seller for the shares transferred. This step is easy to overlook because nothing is filed anywhere, but the register of members is the company's own record of who its shareholders are, so the transfer is not complete internally until it is updated.

How to issue a new share certificate

• Step 7: the company issues a new share certificate to the buyer. The certificate evidences that the buyer is the new rightful owner of the shares. Document D1 is a drafting guide showing how to complete each numbered point on the certificate, and document D2 is the Word template of the certificate itself.

Notify Companies House of PSC changes

• Step 8: update Companies House. Through your WebFiling account, make any notifications that are needed. For example, the seller may no longer be a person with significant control, in which case that register at Companies House needs updating, and the buyer may have become a person with significant control, so their details need to be submitted. Whether a PSC notification is needed depends on the size of the holding being transferred, so check the position after every transfer rather than assuming nothing has changed.

Next steps

I appreciate this process is not easy. There are quite a few steps and quite a few documents to draft. Gather the stock transfer form, the share certificate (or an indemnity), the board minutes, the registers and a new certificate before you start, and take each step in order. If the transfer is anything other than straightforward, or stamp duty is in doubt, speak to a corporate solicitor and the buyer should take tax advice.