In short: You add a shareholder either by issuing new shares (allotment, reported on form SH01 within one month) or by an existing shareholder transferring shares to them. You remove a shareholder by having them transfer their shares to someone else or by the company buying them back. In every case, update the register of members and issue new share certificates.
Shareholders, members and owners
Shareholders (also called members) own a limited company. They are separate from directors, who run it. A shareholder cannot simply be "removed" like a director: they leave the company when they no longer hold any shares. So adding and removing shareholders is really about moving shares.
Before you start, read your company's articles of association and any shareholders' agreement. They may include rules such as pre-emption rights (existing shareholders get first refusal) or a requirement for directors to approve transfers.
Adding a shareholder
There are two ways to bring in a new shareholder.
Option 1: Issue new shares (allotment)
The company creates new shares and gives them to the new shareholder, usually in return for money. This raises capital and reduces the percentage held by existing shareholders.
- Check the directors have authority to allot shares. Private companies with one class of shares often have this under the Companies Act, unless the articles say otherwise.
- Deal with pre-emption rights. Existing shareholders may need to waive their right to be offered the shares first.
- Record the decision in board minutes, and pass any shareholder resolutions needed.
- Receive payment for the shares.
- File a return of allotment (form SH01) with Companies House within one month.
- Update the register of members and issue a share certificate.
Option 2: Transfer existing shares
An existing shareholder sells or gives some or all of their shares to the new person. The company does not receive any money.
- The seller completes and signs a stock transfer form.
- Pay any stamp duty. If the price is over £1,000, stamp duty is 0.5% of the price, rounded up to the nearest £5. Transfers of £1,000 or less, and gifts, are usually exempt but must be certified on the form.
- The directors approve and register the transfer, if the articles require it.
- Update the register of members.
- Cancel the old share certificate and issue new certificates.
The transfer appears on the company's next confirmation statement.
Removing a shareholder
A shareholder stops being a member when they have no shares left. Common routes are:
- Transfer to another person: the leaving shareholder transfers their shares to an existing shareholder or a new one, following the transfer steps above.
- Company buyback: the company buys the shares back and cancels them. This has strict rules: it usually needs a shareholder resolution, must normally be paid from distributable profits, and must be reported to Companies House on form SH03 (and SH06 to cancel the shares). Stamp duty may apply.
- Compulsory transfer: some articles or shareholders' agreements require a shareholder to sell, for example if they leave employment ("good leaver" and "bad leaver" clauses). Without such a clause, you cannot force a shareholder to sell.
Buybacks have tax consequences for both the company and the shareholder. Speak to an accountant or solicitor before using one.
Do not forget the PSC register
If the change means someone gains or loses more than 25% of the shares or voting rights, the company's people with significant control (PSC) details change. Update the PSC register and tell Companies House within 14 days. A new PSC must also verify their identity with Companies House.
Records to keep
- Board minutes and resolutions
- Signed stock transfer forms (stamped, where stamp duty applies)
- The updated register of members
- Copies of new share certificates
- Companies House filing receipts
Common mistakes
- Ignoring pre-emption rights in the articles.
- Forgetting the SH01 deadline after issuing shares.
- Not updating the register of members, so the legal owner is unclear.
- Leaving PSC information out of date.
How Form My Company can help
Our Share Issue and Transfer service (£150) does the work for you: resolutions, stock transfer forms, Companies House filings and updated registers. If the change creates a new PSC, we can verify their identity remotely as a Companies House ACSP. We can also produce new Share Certificates and file your Confirmation Statement so the public record shows the right shareholders.
Frequently asked questions
Can I remove a shareholder without their agreement?
Usually not. A shareholder leaves only when their shares are transferred or bought back. You can force a sale only if the articles or a shareholders' agreement allow it.
Do I need to tell Companies House about a share transfer?
Not straight away. The transfer is shown on the next confirmation statement. PSC changes must be reported within 14 days.
How long do I have to file an SH01?
A return of allotment (SH01) must be filed within one month of the new shares being allotted.
Is stamp duty payable on a share transfer?
Stamp duty is 0.5% of the price, rounded up to the nearest £5, when the price is over £1,000. Gifts and transfers of £1,000 or less are usually exempt, but the form must be certified.