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Whether you require assistance for the transfer of shares, or if you have any other specific inquiry, Coddan can help. In all situations, we aim to provide the most cost-effective and comprehensive services. Take a look at the other services we offer: |
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Shares and their Functions:
The Articles of Association of a company set out the powers of the members and those powers which are delegated to the directors of the company. The articles generally provide that the business of the company is managed by the directors, subject to the provisions of the articles of association, and that under certain conditions, those directors may also delegate responsibilities to members. The transfer of shares is only one example that illustrates the relationship between the powers of directors and members.
It is normal that a member decides to sell the shares they hold, and whether or not the company is allowed to transfer shares will be specified in the company’s Memorandum. A member’s shares in a company are transferable personal property; however, in a private company, various restrictions are placed on the transfer of shares. These restrictions are normally implemented by granting the directors of a private company the discretion to refuse to register the transfer of shares to a person of whom they do not approve. The directors can also require that the shareholder wishing to sell their shares initially offers those shares for sale to existing members of the company, rather than outside parties.
Certain rights apply only to members who are shareholders in a company; basically someone who is appointed as a member of a company limited by shares must also be a shareholder in the company. Where a company has a share capital, the company may, in its memorandum or articles of association, create a power to issue different classes of shares, including ordinary, preference and redeemable shares.
Types of Shares:
Ordinary shares basically carry the right to a vote. When a company is wound up, they generally have the right to participate in any leftover funds beyond the fixed amount which they originally invested in their shares. In the case that ordinary shares carry weighted or differing levels of voting power, but carry equal entitlements in respect of dividends and capital, they are normally divided into “classes”.
Preference shares carry preferential rights on dividends or capital. A share which is “preferred as to dividend” usually entitles the member to be paid their dividend with priority over the ordinary shareholders. Preference shareholders’ entitlements to dividends are expressed as a right to a percentage per annum of the nominal amount of the share. Also, when a company is being wound up, share which is “preferred as to capital” entitles the member to have their capital investment in the company completely repaid before the ordinary shareholders are returned their capital.
Redeemable shares are shares which the company is entitled to redeem, or buy back, from its members. When shares are redeemed, the company generally cancels them; however, a treasury share is a share which is retained on redemption by the company and can later be re-issued.
Finally, bonus shares are shares issued to the shareholders in proportion to their existing shareholdings. These shares are issued as having been fully paid, meaning the shareholders are not required to pay for them; in fact, the shares are usually paid from accumulated profits that have been transferred to capital (capitalised).
How are shares transferred?
The procedure for making a transfer may seem straight forward, but to be done correctly, it involves more than having a stock transfer form signed. Entries must also be made in the company's Minute Book, Register of Transfers and Register of Members. Furthermore, the old share certificates must be cancelled, and new certificates need to be issued under the company seal of the company. If the old share certificate is lost, then an indemnity has to be completed. The Company's Memorandum & Articles should also be inspected to see if there are any restrictions on the transfer of shares. Finally, the stock transfer form must then be sent to the Revenue Commissioners to be stamped.
Stamp Duty is levied at the rate of 1% of the consideration paid for the shares or the market value, which ever is higher. If the value given for the shares is subsequently found to be understated, the Revenue Commissioners have the power to impose surcharges. (S103 Finance Act 191) It is important that your stock transfer forms are submitted as quickly and as accurately. The "market value" of shares in a private company is an area that is open to wide interpretation, and for this reason, the Revenue Commissioners strongly encourage the completion of a form
SD4, when sending in stock transfer forms. This form allows them to make an assessment of the value of the shares being transferred and ensure that the correct duty is being paid. If they feel that that further information is required, they will sometimes request that the last three years accounts of the Company in question be sent to them for consideration.
Pre-emption Rights of Shareholders:
Section 23 of the Companies (Amendment) Act, 1983 gives the existing members of a private company a statutory ‘pre-emption’ right, which means that when new shares in the company are being issued, the existing shareholders have an automatic right of first refusal to purchase these shares in proportion to their existing shareholdings. Therefore, if the existing shareholders decline to exercise their pre-emption rights, parties other than the existing shareholders will, be entitled to purchase newly issued shares in the company. Under the statutory pre-emption scheme, the offer of shares to the existing shareholders must be served to the members in the same way that notices of general meetings are given, and there will be period of at least twenty-one days during which the offer can be accepted or declined.
The statutory pre-emption rights can generally be removed by the memorandum of association, the articles of association, or by a special resolution, which is passed by a 75% vote. In addition to holding a meeting, the directors must also furnish the members with a written statement that explains their reasons for the proposed departure from the statutory pre-emption scheme. Statutory pre-emption rights are not given to shareholders having preference shares or where the allotment is of preference shares. Also, pre-emption rights are not granted when the allotment of shares is in respect of an employees’ share scheme or if any portion of the allotment is to be paid via a non-cash consideration.
Increase in Share Capital:
When a company begins to grow, and when it is necessary, the owners may desire to increase the company’s nominal share capital in order to allot more shares than the original capital will allow. Also, the company may wish to simply create a new class of shares that what were initially issued. In these cases, Coddan will be able to prepare the necessary Companies Registration Office, the Memorandum and Articles of Association, and the minutes of directors and members, showing the new amount of nominal capital.
Coddan aims to provide you with the tools you need to move forward with your Irish company formation. Whether you want to form a new company, ask us about assistance with transferring or issuing shares, or request further information, contact us today!
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