You can transfer shares for nominal value when you want to gift them to someone or something (e.g. a family member or friend, or a family trust), if giving away shares to a co-founder in very early stages of the company (i.e. before you have really started). If you are receiving investment, then you should issue new shares to your investor, rather than transferring existing ones.
If looking to sell shares for real value, then please see our step by step guide on selling shares.
The act of transferring the shares is very simple:
To transfer shares, you complete a share transfer form (AKA stock transfer form) and then issue the new shareholder with a share certificate (and you can adjust your own share certificate too to reflect the change as well). (See a completed example of a share transfer form here).
You can inform Companies House of the transfer when you submit your Annual Confirmation Statement to them – but remember the transfer is a private transaction which happens when you complete your share transfer form and the buyer pays the purchase price. Your notification to Companies House is just a notification.
(1) You also need to ask if there are conditions attached to the transfer:
e.g. For a transfer to family member or friend, you may need to establish that their shares will not carry any voting rights, and it is just a gift in case the company is sold in future. You can do this with a simple letter signed by both parties.
e.g. For a transfer to a co-founder, you will need your co-founder agreement to establish what happens to the shares if the co-founder leaves the business. You may want to include reverse vesting provisions.
Where there are conditions, these conditions should be inserted in a document and signed by both you as the transferor, and the new owner of shares as the recipient or transferee.
(2) if you already have a shareholders agreement with investors, there may be restrictions on transfers, such as ‘pre-emption rights’.
A pre-emption right is a right of first refusal of an existing shareholder – i.e. to pre-empt something.
In the case of a pre-emption right on share transfers, this usually means the other shareholder has a right to buy your shares at a no less favourable rate than what is being offered to the other possible buyer. Ultimately, you are not forced to sell, but if you want to sell, the existing shareholder has the first right to refuse the opportunity to buy on the same terms offered to any other person, before any other person can do so.
The quickest way to avoid any issues with this is to ask the existing shareholders to waive their pre-emption rights, using a shareholder resolution to waive pre-emption rights.
Pre-emption rights on transfers exist in most investment agreements and shareholder agreements, so if you have one in place, then check this first. Pre-emption rights usually don’t apply where making transfers to close family members – these are usually referred to as ‘permitted transferees’ which are typically exceptions to the usual pre-emption rules.
Ensure you consider whether the transfer is freely permitted, and whether you should sign any agreements before making the transfer. Once done, the transfer itself is very simple using the share transfer form.
This guide was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated contracts and loads of startup legal resources and guides. For queries on company shares or generally, contact us directly.