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Selling shares in a private limited company

Private limited companies which are registered with companies house are able to sell, gift or transfer company shares to other individuals. A company share represents a proportion of the business which you own. Having ownership of a share entitles you to a relative proportion of the company profits.

Reasons for selling or transferring shares in a company include:

  • generating cashflow or investment;
  • rewarding employees, or;
  • selling a business through a share purchase

Buying a business through a share purchase involves transferring all, or the majority, of the shares that make up a company. In a limited company, because all the assets that are involved in running a company belong to the company and not an individual, the sale of shares transferred ownership to the person who owns the shares.

The process of selling shares, regardless of the company’s size, can be complicated and time-consuming. Rotheras Solicitors are trained in all the areas surrounding the sale and buying of shares.

With an experienced team of solicitors at your side, you will find the process easy, simple and quick. We ensure the process is communicated to you in simple terms so that you understand everything that is going on.




How do company shares work?

Shares represent a portion of the company. The number of shares that a company has will depend on how many shares issues were created when the company was registered with companies house. The minimum number of shares a company has is 1. There is no upper limit on the number of shares a company has.

Usually, companies will have an even number of shares to make it easier to divide among shareholders.

The best way to imagine how shares work is like a cake. Each slice of the cake is a piece of the whole cake. The cake itself can be divided up equally – halves, quarters, eighths. Or it can be cut up unequally – e.g. one third and two thirds.

Shares work in the same way. A company can be divided up and shared equally or unequally between different shareholders.

The most common type of shares within a limited company are ordinary shares. An ordinary share is a class of share that entitles the holder ownership of a company. This ownership is proportional to the number of issued shares.

For example, if you own 10 shares in a company that has 100 shares, you will have 10% ownership of the company.



What needs to happen to sell shares?

To sell or transfer shares in a company, either an existing shareholder has to give up or sell their shares, or the company will need to create new shares. However, the creation of new shares will impact the shares already in existence as the total always has to be 100%.

If you are buying the company through share purchase, it is likely that you will be buying all the existing shares of the company. This will grant you full ownership of the business, its assets and liabilities.

Part of the process of selling shares will be to notify companies house of any changes to the share certificates.



How much should I sell my shares for?

The price of shares in a private company will depend on many factors such as previous performance and predicted future profit performance. It could also depend on the purpose of you selling shares. Is it because you are getting investment? Or are you looking to sell the business through a share purchase?

These circumstances could impact the value of the shares you sell. For example, if it is that you are seeking investment, you may be willing to offer a larger proportion of shares for a lower price to someone who could be an asset to your business growth.

For example, you may want to give part ownership to a family member. Alternatively, you might look at gifting strong performing employees with some shares as a reward.



What is the process of selling shares?

The process may differ slightly depending on whether you are looking to invest in a company, take part ownership of a company or take full ownership of a company. However, the usual process included the following steps:

  • The parties involved will often negotiate the basic terms of the deal which is sometimes set out in writing using “Heads of Agreement”. This is a document in which both parties agree ;
  • We will work with you to consider and plan for the future and carry out enquiries and searches where applicable;
  • The seller will often require a non-disclosure agreement/confidentiality undertaking;
  • The buyer will carry out Due Diligence to obtain various information relating to the company being purchased; if we are acting for the seller we can help prepare the paperwork and responses to send to the buyer’s solicitor;
  • The buyer’s solicitor will usually prepare a draft of the Share Purchase Agreement which will be forwarded to the seller’s solicitor for their review, which may undergo several revisions as the negotiation progresses;
  • A Disclosure Letter is drafted by the seller and negotiated between the seller and the buyer. This aims to bring any potential problems to the buyer’s attention by stating any matters that the seller knows of.



Why use Rotheras for Share Sales?

Advice will be given to you on all legal aspects of share purchases.

Throughout the due diligence process, you will get legal assistance to respond to any enquiries. We will assist in preparing any documentation.

By listening and working with your individual needs, we will provide you with tailored advice and help in negotiating and structuring the right deal for you.

During your share transaction, you will be kept updated on the progress.

We will liaise with your professional advisers to ensure that the documentation is drafted clearly, fully and accurately.

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Billy Shaw

Billy Shaw

Billy advises businesses on a range of commercial and corporate issues and is happy to assist you with buying or selling businesses, corporate mergers and shareholder agreements.

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Lauren Kilbride is a Trainee Solicitor within Rotheras’ Corporate & Commercial department and is based at the firm’s Lace Market office.

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