Selling shares in a private limited company

Sep 1, 2023

How the process works

In the UK, the sale of shares in a private limited company involves a structured process that typically requires approval from both the directors and shareholders. Here are the steps involved.

Approval by Directors

  1. Initial Proposal: The process usually begins with an offer or proposal to sell shares. This can be initiated by an existing shareholder or an external party interested in purchasing shares.
  2. Board Resolution: The board of directors needs to convene a meeting to discuss and approve the sale of shares. During this meeting:
  • The terms and conditions of the sale should be reviewed and agreed upon.
  • The board should assess the impact of the sale on the company’s operations, financials, and existing shareholders.
  • A board resolution is passed, approving the sale of shares and authorizing necessary actions to proceed.
  1. Legal Review and Documentation: The directors or legal representatives should ensure that all necessary legal documentation is prepared, including share purchase agreements, disclosures, and any other required contracts.

Approval by Shareholders

  1. Notice to Shareholders: Shareholders must be informed about the proposed sale. The company must provide them with adequate notice of the meeting where the sale will be discussed and voted upon.
  2. General Meeting: A general meeting of shareholders should be convened. During this meeting:
  • Details of the proposed sale, including terms, reasons, and potential impact on the company, should be presented.
  • Shareholders vote on the sale. The approval may require a simple majority or, depending on the company’s Articles of Association, a special majority.
  1. Documentation: Once approved by the shareholders, necessary documents, including share transfer forms, should be executed to effect the transfer of shares.
  2. Update Records: The company’s records, including the register of members, should be updated to reflect the change in ownership.

Additional Steps

Compliance and Regulatory Requirements

  • Consideration of Pre-Emption Rights: If the company’s Articles of Association grant existing shareholders pre-emption rights, these rights need to be considered and complied with before selling shares to external parties.
  • Tax Implications: Consider the tax implications for both the seller and the purchaser. Seek professional tax advice to understand the tax liabilities and obligations associated with the share sale.
  • Post-sale Obligations: After the sale, the company must fulfill any post-sale obligations, which might include transferring ownership rights, issuing new share certificates, or updating share registers.

It’s crucial to seek legal advice and ensure compliance with the company’s Articles of Association, relevant laws (such as the Companies Act 2006), and any other regulatory requirements specific to the situation to facilitate a smooth and legally compliant sale of shares in a private limited company in the UK.

Doug Murphy

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