How To Transfer Shares To Another Person

There are several circumstances where businesses may wish to transfer shares in a company. 

This may arise when a company is sold or a shareholder wishes to sell partial ownership of a company to another person. 

The transfer of shares means there will be a new shareholder in place of a former one. Shares can be transferred in multiple ways, but in this article, we’ll focus on transferring shares through a sale.

The exact process of transferring shares will depend on the internal process of every individual company. However, there are still some regulations when it comes to share transfers that all companies are affected by. 

In this article, we will cover: 

• How share transfers work 
• Notifying the Companies Office of a change in the company 
• The process of transferring shares
• Stamp duty 
• Capital gains
• Costs associated with transferring shares
• Share sale agreements
• Drag along provisions 

How Does A Transfer Of Shares Work?

In order to transfer shares a party will relinquish their portion by selling them either to another existing shareholder or someone outside the company (depending on what the internal regulations for that company permits). 

Once a shareholder has sold their shares to another, their shares become the purchaser’s shares -this is now the new shareholder. 

Companies Office Transfer Of Shares Notification  

The New Zealand Companies Office needs to be notified when a change in shareholders occurs. This needs to be done within 10 working days of the change occurring, otherwise you can be issued with a fine.

A transfer of shares notification can be done online, so make sure your company has an online account registered with the Companies Office.  

Once you have completed and submitted the changes online, the Companies Office will have the information they need to record the changes – let’s go through this process in more detail. 

What Is The Process Of Transferring Shares?

Before you notify the Companies Office of a transfer of shares, the transfer will likely need to be cemented within the company first. 

The process of transferring shares within a company depends largely on the individual company. Often, Company Constitutions dictate how shares are sold within a company. If there is no company constitution, then the replaceable rules set out in the Companies Act 1993 will apply. 

Generally, for shares to be transferred in a company, the transaction between the old shareholder and the new shareholder will need to occur. Along with this, the new shareholder might have to sign a few agreements, such as the company’s Shareholders Agreement, Non-Disclosure Agreements or any other relevant documents that bind them to the rules of the company. 

Once the shareholder has purchased the shares, signed all the relevant documentation and been officially initiated into the company as a new shareholder, the Companies Office must be notified. 

As we mentioned above, notifying the Companies Office can be done online. Once the option to change shareholder details is selected, you will need to provide information regarding the new shareholder such as their name address, contact details and value of their shares. 

Once the new shareholders’ place within the company has commenced and the Companies Office has been notified, everything the company needs to do regarding a change in shareholders is completed. 

Do I Pay Stamp Duty On Transfer Of Shares?

Stamp duty is a tax paid when certain documentation is transferred. You may be wondering whether stamp duty applies on a transfer of shares. The answer is usually no. 

There is no stamp duty on a transfer of shares in New Zealand. 

However, the rules differ for corporate trustees where land is involved. In this case, corporate trust duty tax might apply. 

If you’re confused or have any questions, it’s best to seek the advice of a legal professional so they can clear things up. Our team is always happy to help! 

What Are Capital Gains?

Capital gains refers to the money made from selling shares. If the shares were sold for an amount higher than they were acquired for, a profit has been made, resulting in capital gains. 

Example Bella purchased shares in a software company in 2015 for $2,500. Over the last few years, the company has seen considerable growth and Bella is ready to sell her shares to Sunny. Taking into consideration how much the shares are worth, Sunny offers Bella $300,000 for her shares.  Bella’s profits are considered capital gains.

Capital losses, on the other hand, involves incurring a loss on the price the shares are sold for. 

Capital gains and losses can impact your personal taxes, so make sure you keep a record of them and provide any relevant information to the Inland Revenue Department (IRD). 

What Is The Cost Of Transferring Shares To Another Person?

There is no set fee regarding a transfer of shares within a company. However, there can be tax implications which are dependent on the sale and the seller’s or purchaser’s individual circumstances. 

Hence, not paying a direct fee doesn’t mean you shouldn’t be on the lookout for any other potential financial obligations resulting from the sale. 

Do I Need A Share Sale Agreement?

If you’re buying shares in a company, a Share Sale Agreement will determine the terms of that purchase for both you and the seller. This is important as a Share Sale Agreement includes crucial matters such as: 

• The kind of shares being purchased 
• The number of shares
• Purchase price of the shares
• Details on the share transfer 
• Any pre-sale conditions
• Warranties and indemnities
• Non-compete clauses 

The Share Sale Agreement is a legally binding contract. Whether you’re a company or purchaser, an agreement detailing the terms of the sale is necessary for protection and resolving potential disputes. 

If you’re interested in a Share Sale Agreement, we can help you out – reach out to our team today. 

Why Is A Shareholders Agreement Important?

A Shareholders Agreement is another document that is likely to be signed after purchasing shares in a company. 

When there is a new shareholder, the Shareholders Agreement is usually signed again by all the shareholders. The agreement addresses matters regarding the conduct of shareholders as well as identifying all the current shareholders. 

Generally, a Shareholders Agreement outlines the rules that all shareholders need to comply with. It includes: 

• Right of first refusal matters (whether shares need to be offered within the company prior to selling externally) 
• Processes regarding dispute resolution 
• Director and shareholder relationship 
• Shareholder details and their respective shares 

If there is ever a conflict between shareholders, the Shareholders Agreement can always be referred  to. 

What Are Drag Along Provisions?

Drag along provisions enable the majority shareholder of a company to compel a minor shareholder to sell the company. 

Let’s say the majority of shareholders are in agreement with selling the company, however, a minority (let’s say the divide is 80% to 20%) are refusing to participate in the sale, the majority can force the sale. 

However, the terms of the sale need to remain fair. This means that the minority shareholder must be afforded rights, terms and the price for their sale as they ordinarily would have. 

Enacting a drag along provision does not give grounds to ‘underball’ the minority shareholder, but rather, simply make them sell the company. 

Key Takeaways

Transferring shares is a common way to gain or dispel ownership of a company. However, it’s important to go through the correct processes to make sure everything is done legally according to government regulations and company rules. 

To summarise what we’ve discussed: 

• The ownership of shares can be transferred by selling and buying shares 
• It’s important to check internal company rules to see if there are factors impacting the sale 
• The Companies Office must be notified within 10 working days. This can be done online  
• Generally, you will not have to pay stamp duty or a fee for a share transfer, however, taxes may be impacted 
• A Share Sale Agreement is the document outlining the terms of the sale 
• Shareholders Agreement is a contract between the shareholders of a company 
• Drag along provisions force minority shareholders to sell the company when the majority shareholders are ready to 

If you would like a consultation on transferring shares, you can reach us at 0800 002 184 or [email protected] for a free, no-obligations chat.

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