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LPC Law Notes Business Law and Practice Notes

Transfer Of Shares 1 Notes

Updated Transfer Of Shares 1 Notes

Business Law and Practice Notes

Business Law and Practice

Approximately 649 pages

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Procedure for the Transfer of Shares [use with Procedure documents]

  1. Shares are transferred if the shareholder who owns them, sells them or gives them to another person p208

  2. Under CA 2006 s.544 transfer of Shares is made in accordance with the Co.’s Articles. Thus, Check Articles to see if there is any restriction on transferring shares

  3. Under CA ss.770-772/TA23/MA26 transferor completes and signs stock transfer form (STF)(need not be witnessed) one STF per transfer and even if it is a gift

  4. The STF and old share certificate (s.768) is given to the transferee who need not sign it unless shares are partly-paid under:

  • TA24 The transferee needs to sign

  • MA have not provision on transferee signature but it is good practise to have them sign

(if certificate is lost then, as members must be registered in Co.’s Register of Members under s.112(2), the Register is sufficient evidence of share ownership)

(Uncertificated shares = electronic shares)

  1. The transferee pays for the shares and gets the STF stamped by the company and pays SDLT if:

    • The value of the shares exceeds 1,000 (therefore, not 1,000 exactly)( if transfer below 1000 SDLT Exempt)

    • 0.5% on the consideration, rounded to the nearest 5 (e.g. if SDLT is 230.50p it is rounded up to 235)

    • But No SDLT if the shares are gifted

    • But No SDLT (Intergroup Transfer) i.e. if transfer of assets between Co.s of the same group

  2. Transferee sends his stamped STF and old share certificate to the company to ask for registration

  3. Company will approve the transfer (but may not be obliged under the Articles (see Ds’ refusal to register below))

  4. Company updates the register of members (CA s.771) and (CA s.112)

  5. Company issues new share certificate in transferee’s name within 2 months (CA s.776(1))

  6. Company notifies Companies House of all the changes in membership on Form AR01 in their annual return

NOTE There is no statutory pre-emption regime (But articles of the company may provide pre-emption rights)

Transmission of Shares (aka automatic transfer)(upon death/bankruptcy)p209

  • By operation of law, the shares vest automatically in his PRs (or trustees in bankruptcy s306 IA) (MA27 / TA29)

  • PRs and Trustees are not the legal owners because names are not on the register of members

  • MA27 / TA31: PRs and Ts are entitled to any dividends but not the voting rights

  • MA28 / TA30: PRs and Ts must produce a grant of representation to deal with the shares(s.774), then either:

    1. Elect to be registered themselves; or

    2. Transfer the shares to a beneficiary (s.77(3))

Power of Directors to Refuse a Transfer

Power to refuse trans

  • Under (CA s.771) and (CA s.112) Ds have a duty to register new members but,

  • if their Co.’s Articles allow Ds to refuse, then Ds can exercise that power (can’t if transfer is within family)

  • MA26(5) (absolute) and TA24 (limited) also gives directors the discretion of power [see Articles]:

Exercise

p209

  • Directors must actively exercise it or else lose the power of refusal (Re Inverdeck)

  • The decision to refuse must be recorded in the Board minutes (Re Gresham)

  • It must be exercised in the best interests of the company and for proper purposes (see Ds’ Duties)
Effect of a Failed Transfer

  1. Company must give transferee notice of refusal with reasons (s.771(2)) within 2 months

  2. If the transferee requests further info, the Co. must comply (s.771(3))(info recorded in Board minutes)

  3. If the transfer fails a trust is created. Transferor remains legal owner (s.112) but must account to the transferee for any dividends received...

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