Not many things in life are free; however, there may be certain circumstances where it is appropriate for a shareholder to return shares in a company for no consideration. This process is referred to as gifting shares back to a company.
Why gift shares for no consideration?
There are various circumstances where a shareholder may choose to gift shares to a company. For instance:
- the shareholder may not have a buyer for their shares;
- the company may have historical deferred shares that no longer serve any purpose; or
- an employee or director may have to relinquish shares in the company that he holds in connection with the termination of his employment or directorship where it is not appropriate for him to receive any consideration.
What is the process for gifting shares?
As no consideration is being paid, the shares are not cancelled and the rules on reducing capital do not apply. Nor does it constitute a purchase of shares. As such the only required formalities are:
- the company will require a stock transfer form to transfer legal title in the shares;
- as there is no consideration, stamp duty is not payable on the transfer
- the transferred shares must be fully paid; and
- a statement must be included in the directors’ report.
There will be no change to the company’s issued share capital on receipt of the gift and the gifted shares will continue to exist. The company should be entered on the register of members as the holder of the gifted shares. The rights attaching to those shares will also transfer over and the company would be entitled to receive any relevant dividends or exercise any associated voting rights.
The company may subsequently choose to reduce its capital by cancelling the gifted shares (for instance to create distributable reserves) or alternatively the company could transfer the shares to a third party.
A very generous gift
It is therefore possible for a company to be gifted all its issued shares and essentially become the sole shareholder of itself.
However in practice it is likely that, rather than allowing such a situation to arise, the directors of the company would require an outside shareholder to be found or (if the company’s articles permit) refuse to register the transfer of shares if they considered it was not in the best interests of the company to become its sole shareholder.