By Henry Catchpole , Inform Direct
You have set up in business as a limited company. Lots of people will offer to help you incorporate a new company but where are they when it comes to issuing share certificates; processing a stock transfer form, and dealing with cancellations, replacements and indemnities? Inform Direct offers a cost effective service to help you manage all of these processes simply and quickly.
A share certificate is a written document signed by the officers of a company showing the name and address of the owner of some of the shares in the company. While the name of the shareholder being entered in the register is the conclusive legal proof of ownership a share certificate is reassuring to the shareholder and something they can show to third parties as evidence of ownership.
How share certificates are issued and what happens to them when some or all of the shares are sold can cause confusion.
Here we explore common scenarios in relation to share certificates and teach you how to handle them.
How do you transfer shares?
The transfer of shares in a UK company to a new shareholder, whether by sale or gift, is very common.
If you run a quoted company the transfer of shares will be done through brokers.
For all other companies you can usually make a stock transfer by private agreement between the vendor and buyer, subject to the company's rules and the directors' approval.
If the consideration is more than £1,000 the purchaser will have to pay stamp duty (At 0.5% of the consideration). The seller may be liable to Capital Gains Tax if the gain has exceeded their annual allowance.
The basic requirement is for a stock transfer form (form J30 for fully paid shares; J10 for partly paid shares) to be completed by both the current and, where necessary, the new holder and then stamped by HM Revenue and Customs.
Make sure the details of the shares being transferred match with those in the company’s register of members.
It’s good practice to stamp or write “Cancelled” clearly on the old certificate alongside the date. This provides an audit trail and prevents the certificate being re-issued by accident.
A new certificate with a unique number should be provided to the person receiving the shares within two months of the transfer.
If the shares are split between two or more different new holders, each will require a certificate for their shareholding.
If a company does not issue a share certificate within the deadline, the new shareholder can give notice to the company that it has failed to comply with its statutory obligation to do so.
Can share certificates be replaced?
So what happens if your shareholder’s shares are damaged, defaced, lost, stolen or destroyed?
In any of these scenarios, the shareholder is entitled to request and receive a replacement share certificate but the process to do this differs based on whether the shareholder still has the certificate.
If the certificate is still in the shareholder’s possession, it should be returned to the company.
The old certificate can then be cancelled and a new one issued.
If they don’t have the certificate, it’s common for the company to request details of the circumstances surrounding its loss.
It’s standard practice only to issue a replacement certificate once the shareholder has completed an appropriate form of indemnity.
What is a form of indemnity?
The Articles of Association of the company invariably detail what should happen if a share certificate is lost, stolen or destroyed. It is common that the provisions provide that the person who has lost the certificate will give the company an indemnity in case the old certificate resurfaces and is used fraudulently. It is not just fraud; matrimonial disputes can give rise to misappropriation of share certificates. This is why is is the shareholder’s register which is conclusive proof of ownership.
A form of indemnity is a document, which confirms the shareholder’s details and indemnifies the company against any related liability that might arise.
By signing the indemnity form, the shareholder accepts liability for any direct or indirect losses incurred.
If the amounts involved are large, the indemnity form may need to be countersigned by a bank, insurance company or trust company that will act as a guarantor if the means of the shareholder are rather modest.
They will usually charge a fee for this because they are agreeing to protect the company if a shareholder cannot meet the cost of the potential financial loss. Fees will depend on the value of the shares.
The directors can also ask for payment of a reasonable fee for replacement of a share certificate.
Can a shareholder change the name or address on the share certificate?
If a shareholder changes their name they may request a new share certificate.
Before issuing a replacement, the company should request evidence of the name change. This will most commonly be in the form of a marriage or deed poll certificate.
Once evidence is received, as well as issuing a replacement share certificate with the amended details, it’s important to update the register of members with the new details.
It’s not usually necessary to replace share certificates for a shareholder’s change of address.
However, the register of members should again be updated accordingly with the new address.