How to transfer shares in a limited company (UK): ten steps from agreement to filing

Transferring shares in a UK limited company is a ten-step process. The buyer and seller agree and document the deal, the seller signs a stock transfer form, the buyer deals with stamp duty, the company's directors approve the transfer, and the company updates its own records and Companies House. Here is each step in order, using the document pack I give to clients (documents A to D).

The ten steps at a glance:

• Step 1: draft a share transfer agreement.
• Step 2: the seller and buyer sign it.
• Step 3: the seller completes the stock transfer form and sends it to the buyer.
• Step 4: the seller sends the share certificate to the buyer.
• Step 5: the buyer pays stamp duty, if relevant.
• Step 6: the buyer sends the stock transfer form to HMRC.
• Step 7: the directors meet to approve the transfer.
• Step 8: the company updates its internal registers.
• Step 9: the company issues a new share certificate to the buyer.
• Step 10: the changes are notified to Companies House.

The first six steps are between the buyer and the seller, with HMRC in the middle. The last four belong to the company.

Do you need a share transfer agreement?

• Step 1: draft a share transfer agreement. A share transfer agreement is not a legal requirement, which is why it is not one of the templates in the pack, but it is very advisable to have one. It outlines a few key provisions: who the buyer is, who the seller is, what shares are being sold, what class of shares they are, how many there are and what the price is.

Without it, the only record of the deal is the stock transfer form, which says very little about what was agreed. If anything is disputed later, the agreement is what you will reach for. It is also the natural place to record anything else the parties have agreed about the sale, which the stock transfer form has no room for.

Signing the share transfer agreement

• Step 2: the seller and buyer sign the agreement. This is easy enough and can be done by electronic signature. Once both have signed, the commercial deal is done and the rest of the process is about giving effect to it.

How to complete a stock transfer form

• Step 3: the seller completes the stock transfer form and sends it to the buyer. The government's website explains exactly how to complete a stock transfer form, and the pack points you to it. The form is the document that actually transfers the shares, so it needs to be completed carefully and signed by the seller. It identifies the company, the class and number of shares, the consideration, the seller and the buyer, and it is the document HMRC stamps and the company relies on when it registers the transfer.

Share certificates and lost certificate indemnity

• Step 4: the seller sends the share certificate to the buyer. The certificate is the seller's evidence of ownership and goes to the buyer with the stock transfer form.

I understand that sometimes sellers lose their share certificates. For that situation the pack includes document A, a share certificate indemnity. It should only be used if the original certificates have been lost. If the certificate exists, hand over the certificate; the indemnity is a substitute, not an alternative. To complete it, replace the square brackets with the relevant information, starting with the company's name.

How to pay stamp duty on shares

• Step 5: the buyer pays stamp duty, if relevant. The payment is made to HMRC. In short, you calculate how much stamp duty is owed, which is usually 0.5% of the purchase price of the shares, and transfer that amount to HMRC's bank account. The account details are on HMRC's website, and you must use the payment reference in the format HMRC stipulates, for example your name followed by a slash and the payment amount.

Check the current rate and account details on HMRC's website when you come to pay, rather than relying on figures from an earlier transfer.

Sending the stock transfer form to HMRC

• Step 6: the buyer sends the stock transfer form to HMRC. Document B is a template email for this. Replace the square brackets with your information: the reference you used when making the payment, how much stamp duty you paid and the date of payment. Attach the stock transfer form. HMRC stamps the form and returns it, and it is the stamped form that the buyer then presents to the company.

Board meeting to approve the share transfer

• Step 7: the directors meet to approve the transfer. The directors of the company need to approve the transfer of the shares to the new buyer. To evidence that this has been done, and to comply with the Companies Act, board minutes of the meeting need to be kept. Document C is a template of the board minutes, and once again the square brackets are replaced with your relevant information.

This is the point at which the company, as opposed to the buyer and seller, becomes involved. Until the directors approve the transfer, the buyer has a signed form but is not yet on the company's books. The minutes are short, but they are the record that the board considered the transfer and approved it, which is what the Companies Act expects the company to be able to show.

How to update the register of members

• Step 8: the company updates its internal registers. The internal registers are like spreadsheets recording important information about the company: who the directors are, who the shareholders (the members) are, and who the persons with significant control are.

They are different from Companies House. In a way, Companies House is a reflection of what the internal registers say. The registers, as the name implies, are kept internally by the company, and after a transfer the register of members is updated to show the buyer as the holder of the shares.

How to issue a new share certificate

• Step 9: the company issues a new share certificate to the buyer. Documents D1 and D2 help with this. D1 is a guide that tells you exactly how to complete a share certificate, with a picture of a template certificate and numbering showing where each piece of information goes. D2 is an actual share certificate in Word that you can amend to suit your needs. The new certificate goes to the buyer and the seller's old certificate, now cancelled, stays with the company.

Notify Companies House of the share transfer

• Step 10: notify Companies House. The last step is for the changes to be notified to Companies House. This can be done online, for example through the confirmation statement, so that the public record catches up with the company's internal registers. Remember the order: the registers first, then Companies House, because the filing reflects what the registers already say.

Next steps

Agree the terms in a share transfer agreement first, then work through the stock transfer form, stamp duty, board approval, registers, certificate and Companies House in that order. I have since recorded a fuller walk-through of this procedure, including what to do when no stamp duty is payable, in how to transfer shares in a private company. For anything unusual about the shares or the price, speak to a corporate solicitor before the form is signed.