Issuing new shares and transferring existing shares

Overview: Issuing New Shares vs. Transferring Existing Shares

Understanding the distinction between issuing and transferring shares is fundamental for any company director or shareholder. Issuing new shares, also known as allotment, is the process by which the company itself creates brand-new shares and allocates them to individuals or other entities. This action increases the total number of shares in issue and injects new capital directly into the company's bank account. It is the primary method for raising equity finance from investors, bringing in new business partners, or implementing employee share schemes. However, issuing new shares dilutes the ownership percentage of all existing shareholders unless they participate pro-rata in the new issue, a concept protected by pre-emption rights under the Companies Act 2006.

Conversely, transferring shares involves the sale or gift of existing shares from one shareholder to another. The company facilitates this process but is not a party to the core transaction; the money changes hands between the seller and the buyer. The total number of shares in the company remains unchanged, as does the company's capital. This is the standard procedure when a business owner wants to exit, sell a portion of their holding, pass shares to family members, or reorganise shareholdings among the current owners. The process is governed by the company's articles of association, which often give directors the power to refuse a transfer and may contain rights of first refusal for existing shareholders. This process has direct tax consequences for the buyer (Stamp Duty) and the seller (Capital Gains Tax).

Worth knowing: Issuing new shares brings fresh capital into the company and dilutes ownership, while transferring shares changes owners without affecting the company's capital.

Checking Your Authority: Articles of Association and Shareholder Agreements

Before initiating any share transaction, your first and most critical action is to thoroughly review the company's articles of association. These are the constitutional rules that govern the company's internal affairs, including the power of directors and the rights of shareholders. For companies formed using the standard template, the Model Articles will apply. These contain specific provisions, such as pre-emption rights, which give existing shareholders the right of first refusal on new share issues. If you plan to issue shares to a new investor, you may need a special resolution (75% of shareholder votes) to disapply these rights. The articles also dictate the directors' authority to allot new shares, which, under the Companies Act 2006, must be granted by shareholders via an ordinary resolution (over 50% of votes).

Restrictions on transfers are also found in the articles. While the Model Articles are relatively permissive, many companies adopt bespoke articles containing explicit 'right of first refusal' clauses that force a selling shareholder to offer their shares to existing members before selling to an external party. The articles will also specify whether directors have the power to refuse to register a transfer, a vital control mechanism to prevent shares from falling into undesirable hands. Beyond the articles, you must check for a shareholders' agreement. This is a private contract between the shareholders that can impose even more stringent conditions, such as 'drag-along' and 'tag-along' rights, or specific valuation formulas. Breaching a shareholders' agreement can lead to legal action, even if the Companies Act requirements are met.

• Directors' authority to allot shares (check if this power needs to be granted or renewed by shareholders).
• Pre-emption rights on the issue of new shares (the right for existing shareholders to be offered new shares first).
• Restrictions on the transfer of existing shares (such as rights of first refusal or outright prohibitions).
• Directors' power to refuse to register a share transfer (and the grounds for doing so).
• The existence of different share classes with varying rights.
• 'Drag-along' and 'tag-along' rights in bespoke articles or a shareholders' agreement.
• Any specific procedures for valuation or notice periods defined in the articles or shareholders' agreement.

Worth knowing: Your company's articles and any shareholders' agreement are the ultimate rulebooks for share transactions; ignoring them can invalidate the entire process.

Procedure for Issuing New Shares (Allotment)

Issuing new shares follows a strict legal procedure to ensure fairness and transparency. The process begins with the directors, who must hold a board meeting to formally propose the allotment. At this meeting, they will agree on the key terms: the number of shares to be issued, the price per share (which must be at least the nominal value), and who the shares will be offered to. The board minutes must carefully document these resolutions. If the directors do not have the existing authority to allot shares under the company's articles, or if pre-emption rights need to be disapplied, they must resolve to seek the necessary shareholder approval. This approval is typically obtained through written resolutions or by calling a general meeting of the shareholders.

Once any required shareholder resolutions are passed, the offer can be formally made to the prospective new shareholders. Upon their acceptance and payment of the subscription price to the company, the shares are considered allotted. From this date, the clock starts ticking on your statutory obligations. The company has one month to file a Form SH01 (Return of allotment of shares) with Companies House. This form details the number of shares allotted, their class, the amounts paid, and includes an updated statement of capital. Separately, the company must update its own internal statutory records, primarily the register of members. Finally, the company is legally required to issue a formal share certificate to the new shareholder within two months of the allotment, serving as their proof of title.

1. 1

   Check the company's articles of association for any restrictions or required procedures for allotting shares.

2. 2

   Hold a board meeting to approve the share issue, agree on the terms (price, number of shares), and resolve to seek shareholder approval if required.

3. 3

   Obtain shareholder approval via an ordinary resolution to authorise the directors to allot shares, and a special resolution to disapply pre-emption rights if necessary.

4. 4

   Receive payment for the shares from the new shareholder(s) into the company's bank account.

5. 5

   File a Form SH01 (Return of allotment of shares) with Companies House within one month of the allotment date.

6. 6

   Update the company's internal statutory register of members with the new shareholder's name, address, and shareholding details.

7. 7

   Issue a new, sealed or director-signed share certificate to the shareholder within two months of the allotment.

Procedure for Transferring Existing Shares

The transfer of existing shares is a transaction between the seller (transferor) and the buyer (transferee), which the company must process and record correctly. The process is initiated by the completion of a Stock Transfer Form (J30). The seller completes Part 1 with details of the shares being sold and signs it. The form is then passed to the buyer, along with the seller's original share certificate. The buyer completes Part 2 and pays the agreed consideration to the seller. If this consideration exceeds £1,000, the process has a crucial tax step: the buyer must send the Stock Transfer Form to HMRC for stamping and pay the required Stamp Duty. HMRC will not process the payment and impress the form with a physical or digital stamp to prove the duty has been paid.

Only once the Stock Transfer Form is complete (and stamped by HMRC, if applicable) should it be presented to the company for registration. The company's board of directors must hold a meeting to approve the transfer, assuming there are no grounds for refusal under the articles. Once approved, the board resolves to update the company's register of members, removing the seller's name (or reducing their holding) and entering the buyer's details. The company secretary or a director then physically updates the register. The seller's old share certificate must be cancelled, and a new certificate must be issued in the buyer's name within two months. This final step completes the legal transfer of ownership.

• Forgetting to check pre-emption rights in the articles before a seller agrees a price with a third party.
• The buyer failing to have the stock transfer form stamped by HMRC when consideration exceeds £1,000, which prevents the company from lawfully registering the transfer.
• The company registering a transfer based on an unstamped form where duty was payable.
• Failing to hold a formal board meeting to approve the transfer, which can be challenged later.
• The company forgetting to update its internal statutory register of members promptly.
• Not cancelling the old share certificate and issuing a new one to the buyer within the two-month statutory deadline.

Valuing Shares and Consideration

Valuing shares in a private limited company is more of an art than a science, as there is no public market to set a price. The value depends heavily on the information available and the specific circumstances of the transaction. Common valuation methodologies include an asset-based approach (valuing the company's net assets), which is often used for stable, asset-heavy businesses or as a floor value. An earnings-based approach, which applies a multiple (the 'P/E ratio') to the company's post-tax profits, is more common for profitable trading companies. Discounted cash flow (DCF) models, which project future cash flows and discount them back to a present value, are more complex but can capture future growth potential. The final agreed price is often a negotiation between these different metrics.

It's crucial to understand that 'consideration' for a share transfer does not have to be cash. It can be a 'non-cash' asset, such as property, intellectual property, or even other shares. In these cases, the value of the consideration must be determined for tax purposes. This is particularly sensitive when shares are transferred for less than their market value, or gifted. If the transaction is between 'connected persons' (e.g., family members), HMRC may deem the disposal to have taken place at full market value for Capital Gains Tax purposes, regardless of the actual price paid. This can result in a significant and unexpected tax bill for the seller. Obtaining a professional, independent valuation is therefore highly recommended in all but the most straightforward cases to defend the price against any future challenge from HMRC.

Worth knowing: The valuation of private company shares is subjective and should be carefully considered, as transferring shares below market value can create significant tax problems.

Stamp Duty on Share Transfers

Stamp Duty is a tax on documents, and in the context of share transfers, it is charged on the Stock Transfer Form. The responsibility for paying this tax lies with the buyer (the transferee). The tax becomes due when the value of the consideration for the shares exceeds £1,000. If the amount paid is £1,000 or less, no Stamp Duty is payable, and the transfer form does not need to be sent to HMRC. The same applies to genuine gifts where no consideration is given. In these cases, the buyer can simply complete the relevant certificate on the back of the transfer form and submit it directly to the company for registration.

Where the consideration exceeds £1,000, Stamp Duty is charged at a rate of 0.5% of the transaction value. This amount is always rounded up to the nearest £5. For example, a purchase of £10,000 worth of shares would attract Stamp Duty of £50 (0.5% of £10,000). A purchase of £2,550 would result in a calculated duty of £12.75, which is rounded up to £15. The buyer must send the completed Stock Transfer Form along with the payment to HMRC. Once processed, HMRC impresses a stamp on the form and returns it. It is a breach of the Companies Act for a company to update its register of members from a transfer form that should have been stamped but has not been. This makes HMRC stamping a non-negotiable step in the legal transfer of title for transactions over £1,000.

Worth knowing: Stamp Duty at 0.5% is payable by the buyer on share transfers where consideration exceeds £1,000, and HMRC must stamp the form before the company can register the new owner.

Capital Gains Tax (CGT) for the Seller

When an individual disposes of shares by selling them, they may be liable to pay Capital Gains Tax (CGT). The tax is charged on the 'gain' made, which is the difference between the disposal proceeds and the 'base cost' of the shares (what the individual originally paid for them, plus any associated costs). Every individual has an annual CGT exemption, allowing them to realise a certain amount of gain each tax year without paying any tax. Gains above this threshold are then taxed. The rate of CGT depends on the individual's overall income. For the 2025/26 tax year, basic-rate taxpayers pay 18% on gains from shares within their unused basic-rate band, and higher and additional-rate taxpayers pay 24%. It is the seller's personal responsibility to calculate and report any taxable gains to HMRC via their Self Assessment tax return.

A major relief available for shareholders in private trading companies is Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief. If the qualifying conditions are met, this relief allows the individual to pay a reduced CGT rate of 14% for 2025/26 disposals, rising to 18% from 6 April 2026, on the gains, regardless of their income tax band. This can result in a substantial tax saving. To qualify, for at least two years leading up to the sale, the company must be a trading company, and the individual must be an employee or director who owns at least 5% of the ordinary share capital and voting rights. There is a lifetime limit on the total gains that can benefit from BADR. Understanding your eligibility for this relief is one of the most important financial planning steps before selling your shares.

• The company must be a 'trading company' or the holding company of a trading group.
• The individual must be an officer (e.g., director) or employee of the company.
• The individual must hold at least 5% of the ordinary share capital of the company.
• The holding must give the individual at least 5% of the voting rights.
• These conditions must all be met for a continuous period of two years ending on the date of disposal.
• The relief is subject to a lifetime allowance for each individual.

Updating Company Records and Companies House

A common point of confusion is the difference between the company's own records and its filings at Companies House. Following any share transaction, the first legal duty is to update the company's statutory registers. These are the official books of the company, kept at its registered office or SAIL address. For a share issue or transfer, the most important book to update is the register of members. This register is the definitive legal proof of share ownership. Failing to keep it updated is an offence. For a new issue, you also update the register of allotments, and for a transfer, the register of transfers. These internal updates must be done promptly once the transaction is legally complete.

The requirements for notifying Companies House are separate and distinct. When new shares are issued, you must file a Form SH01 (Return of allotment of shares) within one month. This informs the public registrar of the change in your company's share capital. For a transfer of existing shares, however, there is no specific event-driven form to file. Instead, the change in the list of shareholders is reported on the company's next confirmation statement (Form CS01). This statement, filed at least once every 12 months, confirms the company's details on the public record, including its shareholders, are correct as of a certain date. The digital filing fee for a confirmation statement in the 2025/26 tax year is £50.

A critical aspect of this process is the register of Persons with Significant Control (PSC). If a share transaction results in an individual or entity acquiring or ceasing to have more than 25% of the shares or voting rights, their status as a PSC has changed. You must update the company's internal PSC register immediately. Following that, you must file the appropriate form (e.g., PSC02 to notify of a new PSC, or PSC07 to note a change in their details) with Companies House. Unlike shareholder changes on a transfer, PSC changes must be reported to Companies House as they happen, not just on the next confirmation statement.

Worth knowing: Failing to update the company's internal statutory registers is a breach of the Companies Act, separate from the requirement to notify Companies House via an SH01 or Confirmation Statement.

Different Share Classes and Their Rights

Not all shares are created equal. A private company has the flexibility to create different 'classes' of shares, each with a unique bundle of rights. This is a powerful tool for structuring investment, rewarding key employees, and managing control. The most common type is the 'ordinary' share, which typically carries one vote per share, a right to a proportion of dividends declared, and a right to a share of the company's assets on winding up. However, when issuing new shares, you might decide to create a new class to attract an investor without giving them voting control. This could involve creating non-voting shares that have a preferential right to dividends.

For example, 'preference shares' often carry a right to a fixed dividend (e.g., 5% of their issue price per year), which must be paid before any dividends are paid to ordinary shareholders. They may or may not have voting rights. Conversely, you could create 'management shares' with multiple votes per share to ensure the founders retain control even after selling a majority of the equity. The specific rights attaching to each class must be clearly defined in the company's articles of association. Creating a new class of shares or changing the rights of an existing class almost always requires amending the articles, which needs a special resolution passed by 75% of the existing shareholders. When buying or selling shares, it is vital to know exactly what class of share is being transferred to understand the rights you are acquiring or giving up.

• **Voting Rights:** Defines the holder's influence on company decisions. Can be one vote per share, multiple votes, limited votes, or no votes at all.
• **Dividend Rights:** Determines entitlement to company profits. Can be a right to participate equally (ordinary shares), a right to a fixed dividend first (preference shares), or no right at all.
• **Capital Rights:** Specifies the order of repayment if the company is wound up. Preference shareholders are often repaid their capital before ordinary shareholders.
• **Redemption Rights:** Allows the company to buy back the shares at a future date, either at its option or the shareholder's option. These are known as 'redeemable shares'.
• **Transferability Rights:** While generally covered elsewhere in the articles, rights specific to a class can sometimes include different restrictions on their sale.

Worth knowing: Share classes allow you to separate economic interest from voting control, but their rights must be explicitly defined in the articles of association.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• Companies House: Return of allotment of shares guide (SH01)
• HMRC: Stamp Duty on shares
• HMRC: Business Asset Disposal Relief
• Legislation.gov.uk: Companies Act 2006

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.