Allotment, transfer and transmission of shares

Question 1

What is an allotment of shares?

Answer 1

Contract between the company and a new/existing shareholder under which the company agrees to issue new shares in return for the purchaser paying the subscription price.

Question 2

What is a transfer of shares?

Answer 2

A contract to sell existing shares in the company between an existing shareholder and the purchaser. The company is not a party to the contract on a transfer of shares.

Question 3

What is the s755 restriction on private companies?

Answer 3

Private companies are prohibited from offering shares to the public.

Offers which are a private concern' rather than offer to the public’ include offers made to existing shareholders, employees of the company and certain family members of those persons, and offers of shares to be held under an employee share scheme.

Question 4

What is the requirement for a prospectus?

Answer 4

Sometimes a company will be required to publish a prospectus to potential investors. This gives investors details about the company and about the investment itself.

Question 5

What should a prospectus contain?

Answer 5

A prospectus should contain all the information necessary to enable investors to make an informed assessment of the financial status of the company and the rights attaching to those shares.

Question 6

What are financial promotions?

Answer 6

A financial promotion is an invitation or inducement to engage in investment activity. Financial promotions are prohibited unless certain requirements set out in FSMA are fulfilled.

Communications made by a company when issuing shares must either be exempt from FSMA prohibition or be issued or approved by an authorised person who must now be appointed by the FCA to approve financial promotions.

Question 7

What is the transmission of shares?

Answer 7

It is an automatic process in the event of death or bankruptcy of a shareholder.

Question 8

What happens to shares if a shareholder dies?

Answer 8

Their shares will automatically pass to their PRs.

Question 9

What happens to the shares of a shareholder who is made bankrupt?

Answer 9

Their shares automatically vest in their trustee in bankruptcy.

Question 10

What is a share transfer?

Answer 10

Shares may be transferred by an existing shareholder to a new shareholder by sale or gift. Shareholders are free to transfer their shares subject to any restrictions in the Articles.

Question 11

What are the restrictions on transfer?

Answer 11

1. Directors power to refuse to register.
2. Pre-emption clauses on transfer.

Question 12

What powers do directors have to refuse to register a transfer of shares?

Answer 12

Model Articles state that directors can refuse to register the transfer of shares and if they do so, the STF must be returned to the transferee with notice of refusal unless they suspect that the proposed transfer may be fraudulent.

Under CA 2006, a company must give reasons if it refuses to register a transfer.

Question 13

Does the Model Articles or CA 2006 contain pre-emption rights on transfer?

Answer 13

No, therefore any pre-emption rights on transfer need to be expressly provided for in the Articles.

Question 14

What instrument is used for the transfer of shares?

Answer 14

STF which has to be signed by the transferor and sent to the transferee with the share certificate.

Question 15

When does a new shareholder gain beneficial title to the shares?

Answer 15

When the STF is executed.

Question 16

When does legal title transfer to a new shareholder on the transfer of shares?

Answer 16

When they are entered as a member in the company’s ROM.

Question 16

Is it necessary to pay stamp duty on the transfer of shares?

Answer 16

Stamp duty is payable by the buyer at 0.5% of the consideration.

No SD is payable where the consideration is £1,000 or less.

The STF must be stamped before the new owner can be registered as the holder of those shares.