Transfer of Shares in a Private Company
Allotment and Transfer of Shares
New Shareholders can be introduced to a company in 2 main ways, the allotment of shares and the transfer of shares.
In their basic form, allotment and transfers are a simple procedure; however it is important to understand the basic requirements as these are the important part of more complex transactions like Share for Share Exchanges and Share for Undertaking.
What is a Share?
A share can be described as an intangible accumulation of rights, interests and obligations. The reason companies issue shares is to allow the company raise funds to carry out its activities and make a return for its members. It also allows the ownership to change in a company.
Different share classes may have different rights so it is very important to review the articles of association to understand the rights attached to the shares.
Ordinary shares usually (but never assume!!) have the following rights:
- A right to attend and vote at general meetings
- A right to a proportion of the profits of a company – dividend
- A right to the capital surplus on winding up
- A right to notice & information from Company
Allotment of Shares
The allotment of shares is the issuing of new shares to the existing shareholders or to third parties. The Directors of a Company may allot shares in the capital of the Company, if they have the authority to do so.
Some examples where allotment of shares may be used are as follows:
- To raise money for the Company
- To introduce new investors such as BES investors
- To allow Enterprise Ireland or Enterprise Board Investors
- To convert loans to share capital
- To introduce a golden share
- To put in place a group structure
- To fund a redemption of shares
- To implement a bonus issue of shares
Directors may not allot shares unless they have the power to do so. The Directors power to allot shares expires 5 years from the date of incorporation or 5 years from the last renewal of the power to allot. If the authority to allot shares has not been renewed in the last 5 years then it should be renewed prior to any proposed allotment. This can be renewed by the Members passing an Ordinary Resolution prior to the allotment.
A company must have sufficient unissued authorised share capital before new shares may be allotted by the Directors. If the Company does not have sufficient unissued share capital or is setting up a new share class this must be approved by the members passing a special resolution.
The Memorandum and Articles of Association and any shareholder agreements should be reviewed for regulations on pre-emption rights, unissued share capital and other provisions that may affect the allotment of shares. The shares may be allotted for cash, non-cash and may be allotted at a premium.
The new shareholders must apply for shares to be allotted to them; the Directors must approve the allotment of shares, write up the Register of Allotments and Register of Members and file the form B5 with the CRO. New share certificates should be issued to the new shareholders.
Transfer of Shares
Shareholders have the ability to transfer their shares to existing shareholders or third parties. This allows shareholders to sell their shares or for companies to be bought and sold.
Some examples where we have used transfer of shares are as follows:
- Shareholder wants to transfer shares to existing shareholders
- Shareholder wants to exit company by transferring to existing or third parties
- Succession Planning (transferring shares to spouse or siblings)
- Share for Share Exchange
- Company Takeover
- Company Restructuring or putting a group in place
In a Private Limited Company, Directors have right to refuse any transfer of shares once the reasons are in the best interests of the company and are not oppressing any shareholder rights.
The Memorandum and Articles of Association and any Shareholders Agreements should be reviewed prior to any transfer for any restrictions on the transfer of shares.
A transfer of shares must be approved by the Directors and the appropriate stamp duty paid to the Revenue Commissioners. Stamp duty is calculated at 1% of the total consideration paid or the market value for the shares. If the value of the consideration or the market value of the shares is less than €1,000, the stock transfer form does not have to be stamped.
Stamp duty must be calculated and paid using Revenue’s ROS system. Once the appropriate stamp duty is paid, the Revenue will issue a stamping certificate which must be provided to the Company as proof that the appropriate stamp duty has been paid.
The Company should then write up the Register of Members and Register of Transfers and issue a new share certificate.
If you require assistance on any of the above and drafting of the company secretarial documentation, please feel free to contact us on 01 213 5910.
Transfer of Shares in a Private Company
The procedure for making such a transfer may seem relatively straight forward but if it is to be done correctly, it involves more than simply having a stock transfer form signed.
Entries must be made in the Company’s Minute Book, Register of Transfers and Register of Members.
The old share certificates must be cancelled and new certificates issued under the company seal of the company. If the old share certificate is lost, then an indemnity has to be completed. The Company’s articles of association must be inspected to see if there are any restrictions on the transfer of shares. The stock transfer form must then be sent for stamping by the Revenue Commissioners if the transfer value is in excess of €1,000 or the parties to the transfer are related by blood or marriage. The share transfer is subsequently recorded in the companies’ next annual return.
Procedures required transferring shares in a private company
- Completion of share transfer forms
- Completion of Revenue Commissioners form SD4
- Changes to be recorded in the Company’s Minute Book
- Changes to be recorded in the Register of Transfers
- Changes to be recorded in the Register of Members
- Cancellation of old share certificates
- Issue of new Certificates under the Company Seal and signed by a director and company secretary
- Check the articles of association to ensure there are no restrictions on the transfer or issue of shares
- Should any restrictions be in place a special resolution will need to be passed and filed at the Companies Registration Office
- Presentation of the share transfer(s) to the Revenue Commissioners for stamping
Important points to note
Form SD4 enable the Revenue Commissioners to assess the market value of the shares being transferred and establish the correct stamp duty to be paid. Occasionally the Revenue Commissioners will request additional information, particularly when the change is between those related by blood or marriage, i.e. previous years accounts.
If the amount or value of the consideration of the share transfer is €1,000 or less and that parties subject to the transfer are not related by blood or marriage then the transfer is exempt from stamp duty.
Upon completion of the signed share transfer by the transferee the document should be forwarded to the person that maintains the share register of the company to record the transfer and make the necessary changes in respect of the share certificates.
If the value for the shares is found to be understated, the Revenue Commissioners have the power to impose surcharges. (Finance act 191 (Section 103))
Complete a share transfer on your behalf
We can attend to the secretarial requirements of share transfers, complete a share transfer or issue shares on your behalf.
We will require the following:
- Full name and address of the transferors and transferees
- How many and what type of shares are being transferred
- Share certificates for cancellation
- A copy of the Combined Company Register and Minute Book
- A copy of the latest filed memorandum and articles of association or an instruction to obtain from the Companies Registration Office
- If the value given for the shares is subsequently found to be understated, the Revenue Commissioners have the power to impose surcharges.
As you can see it is important that your stock transfer forms are submitted as quickly, and as accurately, as possible. The market value of shares in a private company is an area that is open to wide interpretation, and for this reason, the Revenue Commissioners strongly encourage the completion of a form SD4, when sending in stock transfer forms.
If the considered value of the share transfer is less than €1,000 and the transfer is between persons not related by blood or marriage it is not necessary to submit the documents to the Revenue Commissioners for stamping. However the share transfer documents should be kept to be recorded in the next annual return.
This form allows them to make an assessment of the value of the shares being transferred and ensure that the correct duty is being paid.