Business - WS5 Equity Finance (Transfer of Shares) Flashcards
What is the difference between share transfer and share transmission?
Share transfer = involves dealing with existing shares (e.g. on sale or gift). No new money or assets are generated for the company, as it is essentially a new transaction between the transferor and transferee, wehreby ownership changes.
- The number of shares remains the same, but there is potential for an individuals control of the company to change.
Share transmission:
Transmission is the transfer of shares by operation of law (e.g. to personal representatives) or a trustee in bankruptcy. When shares are transmitted, the PR/TIB may receive the dividends, but they do not become shareholders. They may apply to be registered as a shareholder in their capacity as PR/TIB.
What is usually included in share transfer provisions?
Usually the company articles will contain restrictions on transfer of shares to stop another shareholder having equal power occurring
or to stop a shareholder whom the other shareholders do not like and with whom they do not want to work from joining the company, because conflict between shareholders would mean the company would not operate as smoothly.
Solicitors have to draft
- complex share transfer provisions in the company’s articles
- in smaller companies common to state that share transfers to family members or other existing shareholders are permitted, but that any other transfer must be approved by the board of directors.
- alternatively, shareholders may be allowed to transfer their shares to other people, but only if they have offered their shares to the existing shareholders first, at a fair value.
Can the company articles restrict a shareholder from selling / buying shares?
What can happen at a general meeting for example? Think legal owner of shares voting in accordance with the wishes of the beneficial owner of the shares.
No. However, a person does not become a
shareholder of the company until they are entered on the register of members (s 113 CA 2006).
Model Article 26 - gives the board discretion to refuse to register the transfer by the board before the transferee can be entered on the register of members and therefore become the shareholder.
If the transferee is never entered on the register of members, they will be the beneficial owner of the shares, but the transferor will remain the legal owner of the shares.
If a general meeting is held after the share transfer but before registration of the transfer, it is the transferor of the
shares, as their legal owner, who will be permitted to attend, and it is the transferor, as legal owner of the shares, who will receive any dividends paid.
However, at the general meeting the legal owner of the shares must vote in accordance with the wishes of the beneficial owner of the shares and must also pay any dividends to the beneficial owner of the shares.
How are shares transferred?
1) Transferor must complete and sign a stock transfer form and give it to the transferee along with the share certificate relating to the shares
2) If the sale price of shares is over £1000 - buyer must pay stamp duty (currently charged at 0.5% rounded up to the nearest £5) on the stock transfer form.
NOTE. No Stamp Duty is payable if the share is a gift.
3) Transferee must send the share certificate and stock transfer form to the company. The company should then:
1) Send the new shareholder a new share certificate in their name within 2 months
2) enter their name on the register of members within 2 months
3) notify the registrar of companies of the change in ownership of the shares when the company files its annual confirmation statement (CS01).
How do you transfer shares by transmission?
It is an automatic process:
1) if a shareholder dies, their shares automatically pass to their personal representatives
2) if a shareholder is made bankrupt, their shares automatically vest in their trustee in bankruptcy.
Under MA 26 - the PRs and trustee in bankruptcy do not become shareholders of the company, but they are entitled to any dividends declared on the shares.
The trustee in bankruptcy and PRs of a deceased shareholder can choose to be registered
as shareholders themselves (unless the directors are entitled to refuse to register them as shareholders and refuse to do so) and can then sell the shares. Alternatively, they can sell
them directly in their capacity as representative
