Do I transfer shares or issue new ones?

Do I transfer shares or issue new ones?

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The following table shows you examples of when you can transfer existing shares and when you should issue new ones. Administratively, it is easier to transfer because you don’t need to adjust your share capital table (cap table), but there are clear occasions where issuing shares is more suitable to avoid unnecessary taxes becoming due, as shown in the table below.

For methods/processes (including how to deal with things like pre-emption rights) see our separate guides on transferring shares and issuing shares. 

TRANSFER EXISTING SHARES 

(use Stock Transfer Form)

ISSUE NEW SHARES

(use SH01 form)

When gifting your shares to a family member or friend for nominal value.

When you receive investment in exchange for shares – issue shares to your investors – don’t transfer because they will likely need to pay stamp duty on top if it’s a transfer, and SEIS or EIS tax relief is only available for where shares are issued.

When giving your shares to a co-founder after you have already registered the Company (see more info in our co-founder guide).

When someone exercises a share option which you granted to them. 

When giving your shares to an early stage employee after you have already registered the Company – also see the co-founder guide for this.

When you want to give someone shares in exchange for any amount equal to or more than £1000 (otherwise stamp duty is payable).

IMPORTANT 1 – STAMP DUTY: If you are giving shares away for nominal value, then you can transfer shares freely. If ‘selling’ shares for more than £1,000 in total, then stamp duty could be payable on the transaction by the buyer at 0.5% of the transaction value.

IMPORTANT 2 – COMMON PITFALL: If you have 1,000 shares in issue and you want to issue 5% to your technical co-founder, then you need to issue them 52 or 53 shares (rounded down or up from 52.63), not 50 shares. 50 is 5% of 1,000 – but if you issue 50 shares, then your total number of shares is then 1,050, and 50 is not 5% of 1,050! So you need to scale up the number of shares issued to make sure they hold the agreed percentage after the new shares are issued. Use this formula to do this (using figures from the above example):

1,000 / 0.95 = 1,052.63 = 100% of shares after the new issue.

1,052.63 / 100 = 10.53 = 1% of shares after the new issue.

10.53 x 5 = 52.6 rounded to 53 shares = 5%  of 1,052.63 shares.

This article 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.