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Share transfers – more than just a form

By Holly Threlfall

Franklins Solicitors

As a corporate lawyer, dealing with the transfer of shares is fundamental to the nature of work that I undertake. Whether a sale to a third party, a company restructure or management buy-out, transferring shares is key to corporate transactions. However, what worries me is the number of enquiries that I receive expecting that all you need to do is sign a Stock Transfer Form.

Whilst a Stock Transfer Form is undoubtedly necessary to any share transfer, it is only one element of a transaction and fundamentally lacks detail that can be imperative to protect both buyers and sellers and maximise a return on the deal. As a seller, what happens to all of your hard-earned cash that is vested in the company? As a buyer, how can you be sure that you are getting what you are paying for and protect future goodwill of the company? What about the structure and tax implications of the deal? A stock transfer form on its own does not address these points or offer any protection.

So, what do you need?

Due Diligence – almost everyone has heard of the phrase ‘buyer beware’. This applies to buying and selling shares just as it does any house purchase. The buyer should raise enquiries to ensure that they have an understanding of what they are buying before they proceed.

Share Purchase Agreement – this is key to any share transaction and includes the obligation to buy shares itself. It can also determine:

* any adjustments to the price based on its net asset value at completion;

* how historic tax liabilities are dealt with;

* the scope of any warranties the seller is giving the buyer in relation to the company; and

* limitations on the seller’s liability and exposure under the contract.

No two transactions are the same and as a result the Share Purchase Agreement may be very simple or it may be complex depending upon the terms agreed, value and nature of the transfer taking place.

Disclosure Letter – a Disclosure Letter is a key protection for any seller as it formally notifies the buyer of facts or circumstances in relation to the company that could otherwise give rise to a claim. It gives the buyer reassurance and certainty as to the scope of any concerns with the company and enables them to plan on how to address them once they have control.

Ultimately, a Disclosure Letter alongside the due diligence is about transparency and certainty for both parties.

Power of Attorney – this may seem like an unusual one for a share transfer, but it is crucial from a technical perspective for any prospective buyer. Most people are not aware that legal ownership of shares does not transfer until Stamp Duty has been paid on your transaction and the Statutory Books written up. Once the Stock Transfer Form has been delivered to you duly signed and you have paid the seller the monies they are due, it then has to be sent to HMRC for stamping. This must be done within 30 days – and I am going to make no comment on the time that it may take for HMRC to stamp and return the Stock Transfer Form to you.

However long this may take, you do not legally own the shares, and therefore the company, that you have paid for during this time. If you declare a dividend, that would still belong to the seller as the current owner. The Power of Attorney transfers all rights to you in this interim period so that you can exercise all powers in respect of the shares and benefit from them as an owner of the company notwithstanding that your Stock Transfer Form may still be with HMRC.

Ancillary Documents – every company must comply with the provisions of the Companies Act 2006. Failure to do so is an offence and could stand to undermine a transaction on the ground of lack of authority. Every transaction, therefore, has a series of ancillary documents which are required to approve the share transfers and company changes that may happen as a result. This may include board minutes, shareholders resolutions, resignation letters and notices for the changes in persons with significant control over the company. Certain forms would also need to be filed at Companies House to notify of changes that have taken place in respect of the company. The scope of ancillaries can be small for a more straight-forward transaction, but if you are transferring shares as part of a restructure or if you have a complex company transaction the number of ancillaries can be significant.

Your success

Structuring a transaction properly with the requisite documentation affords protection to the parties, clarity to the contract and ultimately can make sure that a transaction is structured in a tax-efficient manner. It reduces the risk to you, maximises the return you receive and ultimately ensures a successful transaction allowing you to realise the return on your investment.

If you would like to discuss the structure of a transaction and requirements for share transfers, contact Holly Threlfall, Solicitor in the Business Services team at or call 01604 828282.

Companies mentioned in this article

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