Step by step – a guide to transferring shares in your company

The term ‘Share Transfer’ refers to the process of transferring ownership of shares from one person or entity to another.

This transaction is likely to occur between individual shareholders, companies, or other legal entities.

Share Transfers are common in private limited Companies when shareholders wish to sell, gift, or pass on their shares to someone else.

However, the process of transferring shares in a private company can be a complex and intricate journey.

The purpose of this guide is to help make that journey a simpler one and to provide a clear roadmap for ensuring a compliant and smooth share transfer process.

The transfer of shares usually takes place during corporate restructuring, estate planning, and investments, allowing shareholders to adjust or redistribute ownership of the company.

Any shareholder can transfer in writing all or any of their shares, subject to any restrictions included in the company’s constitution or a shareholders agreement.

This right of transfer is provided under Section 94(1) of the Companies Act 2014.

Therefore, unless the constitution states otherwise, this is the default position.

However, any transfer must be approved by the directors (see Directors Approval below).

If there is a Shareholders Agreement in place, then this should also be reviewed before any transfer takes place, as generally such an agreement details how/when shares can be transferred and sets out specific rules.

If there is such an agreement, then it will overrule the general rule stated in S94(1) of the Companies Act.

 

Share Transfer Procedure

 

Step 1 – Share Certificates

If a shareholder wishes to sell or transfer his/her shares, he/she should present the share certificate(s) for the shares being transferred to the company, generally to the Company Secretary.

Most standard printed share certificates incorporate a counterfoil system, enabling a record of the certificates that have been completed and issued to be kept.

If you don’t want to use a pre-printed Share Certificate, you can use our share certificate template.

When you have registered the transfer of shares, the old share certificate should be cancelled, and a new share certificate must be issued to the transferee.

Where the transferring shareholder still holds other shares, a fresh share certificate must be issued to him covering his remaining shares (known as a balancing certificate).

Cancelled share certificates should be kept with the register of members for a reasonable period.

Step 2 – Stock Transfer Form

To give effect to any share transfer, a stock (share) transfer form must be filled in.

Section 94(2) of the CA2014 only requires this form to be signed by the transferor (i.e. the person who disposed of the shares) unless the shares are not fully paid, in which case the transferor and transferee must sign the share transfer form.

Where the transaction is for €1,000 or less, then a part of the share transfer form must be signed by both parties.

In the interim, the transferor holds the shares as trustee for the transferor pending registration of the transfer.

The transferor may apply to the company to have the transfer effected in the company register of members if the transferee does not inform the company.

You should also confirm that the stamp duty payable on the transfer of shares has been paid (see Stamp Duty below).

You can find a Stock Transfer Form here

Step 3 – Director Approval

Share transfer typically necessitates a formal approval process, often via a Board Resolution, unless an officer of the company had previously been authorised to accept share transfers.

However, the Directors of a company may in their absolute discretion, and without assigning any reason for doing so, decline to register the transfer of any share, unless the Constitution provides otherwise.

This right is provided under section 95 of the Companies Act 2014.

The Directors have 2 months after receiving the transfer instruments (the stock transfer form and share certificate) in which to decline and notify the Transferee of the refusal.

The directors may charge a fee of €10 to effect the transfer.

You can find our board minutes approving a share transfer here

Step 4 – Register of Members

The number of shares held by the Transferor should be updated and, if the person is no longer a member, the date of cessation as a member should be entered.

The name, address, share class, number of shares and date of registration of the Transferee should be noted.

Legal title does not transfer to the transferee (i.e. the person receiving/acquiring the shares) until the name of the transferee is entered into the register of members of the company.

Step 5 – Register of Transfers

The details should be recorded in the Register of Transfers, documenting the Transferor, Transferee, share class, number of shares, the consideration, and the date of registration.

Step 6 – Update Register of Interests

The Register of Directors’ and Secretaries’ Interests must be updated within 3 days of the company being notified, should the transfer involve someone holding that position in the company.

Step 7 – Update Internal Register of Beneficial Owners

Changes in Beneficial Ownership as a result of the Share Transfer necessitate updates to the internal Register of Beneficial Owners, including details such as the Beneficial Owner’s name, date of birth, nationality, and residential addresses, along with a statement of the nature and extent of the interest held.

Step 8 – Issue New Share Certificates

Within two months of the Share Transfer, new Share Certificates are issued to the Transferee, which must be signed and dated by two Directors or one Director and the Company Secretary and subsequently stamped with the Company Seal.

If a shareholder wishes to sell or transfer his/her shares, he/she should present the share certificate(s) for the shares being transferred to the company, generally to the Company Secretary.

Most standard printed share certificates incorporate a counterfoil system, enabling a record of the certificates that have been completed and issued to be kept.

If you don’t want to use a pre-printed Share Certificate, you can use our share certificate template.

When you have registered the transfer of shares, the old share certificate should be cancelled, and a new share certificate must be issued to the transferee.

Where the transferring shareholder still holds other shares, a fresh share certificate must be issued to him covering his remaining shares (known as a balancing certificate).

Cancelled share certificates should be kept with the register of members for a reasonable period.

Step 9 – Notify RBO

Finally, any change in Beneficial Ownership must be reported to the Central Register of Beneficial Ownership (RBO) within 14 days of the Share Transfer.

This can be filed on the RBO’s Official Website

Step 10 – Notify the CRO

In the context of Transferring Shares within a Private Limited Company, it is important to note that immediate notification to the Companies Registration Office (CRO) is not required at the time of the transfer.

However, it is essential to ensure that this transfer is accurately reflected in the company’s subsequent B1 Annual Return.

This document serves as a critical record of the company’s annual activities and changes, including Share Transfers.

 

Restrictions on Share Transfers

 

Private companies have the ability to place fairly tight restrictions on the transfer of its shares.

Existing shareholders, directors and certain third parties may all have rights to prevent, or at least have notice of, transfers of shares.

The constitution of a company can (and often will) impose restrictions on the ability of shareholders to transfer shares.

The constitution will therefore need to be checked if a share transfer is proposed.

The constitution and/or shareholders agreement often contain pre-emption rights, which give existing shareholders a first right to buy the shares of any shareholder who wishes to transfer them.

Therefore, transfer of shares other than to existing shareholders may not be possible until after an offer at the same price has been made to the existing shareholders.

If pre-emption rights do apply, shareholders may be able to waive these rights with a deed of waiver which can be used for disapplying pre-emptive rights.

You can find our deed of waiver for pre-emption rights here

If the constitution does not allow for the disapplication of pre-emption rights, then the only recourse is to change the constitution.

Any change to the constitution requires a special resolution.

You can find our special resolution clause to change the constitution here

On certain occasions, third parties may also have the right to restrict share transfers.

This might apply where there are investors for example.

It may also apply where there are beneficial owners.

Whilst only the legal owner will appear on the register of members, this may not reflect the real situation as to share ownership.

Shares may actually be owned by a beneficial owner; this could be to reflect a trust or lending arrangement.

In such an arrangement, there will often be a declaration of trust agreement between the legal and beneficial owner, which requires the legal owner to give prior notification of proposed dealings in the shares to the beneficial owner.

The beneficial owner will then be in a position to direct the legal owner as to whether to restrict a proposed transfer.

 

Stamp Duty

 

Stamp duty is a statutory tax payable on certain documents.

It is chargeable on a transfer of shares on a sale.

Stamp duty of 1% of the higher consideration paid or the market value of the shares is payable on the transfer of shares in Companies (with certain exemptions).

The stamp duty is payable within 30 days of effecting the transfer.

Where the consideration paid/the market value (whichever is higher) of the shares being transferred is €1,000 or less, an exemption from the 1% stamp duty on stock transfer forms is available.

To avail of the exemption, the stock transfer form must contain the following certification on the stock transfer form:-

‘It is hereby certified that the transaction effected by this instrument does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration which is attributable to stocks or marketable securities exceeds €1,000.’

The above certification must be signed by the transferee.

Where the stock transfer form is certified, the form will not need to be presented to Revenue for stamping.

It is important to note, however, that where the consideration for a particular transfer of stocks is €1,000 or less but the transfer does form part of a larger transaction or of a series of transactions greater than €1,000 stamp duty of 1% will apply and the Stock Transfer Form must be submitted to Revenue for stamping.

It is usual practice for the transferee to pay the stamp duty.

Exemptions to Stamp Duty

1. Where the consideration for the transfer is less than or equal to €1,000, as outlined The certificate on the reverse of the share transfer form must be completed to claim the relevant exemption from stamp duty.
2. Transfer of shares between spouses does not attract stamp duty, and the share transfer form does not need to be presented to the Revenue for “exempt” stamping.
3. Shares transferred in trust to another party without any tax implications arising, as effectively there is no transfer of ownership, which can be very beneficial where members do not want to disclose their interest in the shares in the company, assuming they are not acting as de facto directors

There are other reliefs from stamp duty which are beyond the scope of this guide.

 

Tax Implications

 

Consideration should also be given to capital gains tax and capital acquisitions tax implications before effecting a transfer.

As there is a transfer of shares, this triggers a disposal of shares for capital gains tax purposes, where a chargeable gain is made.

Depending on whether certain CGT reliefs are available, there may be a CGT liability that should have been paid.

Likewise, where shares are transferred to a party for an amount less than the share’s market value, the transferee is deemed to have received a gift from that other party, which, therefore, brings the transferee into capital acquisition tax.

Depending on the value of the gift, who the gift is from, and whether certain reliefs from CAT are available, it may expose the transferee to a CAT liability or, at the very minimum, a requirement to file a CAT return.

It is important that a formal valuation of the company is performed, so that the parties are not exposed to the potential underpayment of taxes where the valuation placed on the shares was below the market value (irrespective of what was paid for the shares).

 

Checklist of Steps

 

• Check the Constitution / Memorandum and Articles of Association of the company for any pre-emption rights restricting the transfer of shares.
• Check any Shareholders Agreement for any restrictions that might apply
• Prepare a Stock Transfer form
• Preparation of Stamp Duty Revenue form SD4
• Directors Board Minutes approving transfer
• Update internal company registers such as the register of members, register of transfers, register of interests, and if required, the register of beneficial ownership.
• Issue New Share Certificate/s
• Make changes to the RBO if necessary
• Inform the CRO on the next annual return
• Preparation of a deed of transfer
• Preparation of a deed of adherence

 

Conclusion

 

Completing a share transfer involves careful steps and adherence to company policies and tax requirements, especially in private companies.

From verifying pre-emption rights to ensuring proper governance, documentation and legal instruments, as well as notifying regulatory authorities, each step is essential for a smooth and legally sound share transfer.

For a detailed overview of the process involved, check out our step-by-step action plan