The Lowdown on Stock Transfer Form
A stock transfer form (or a stock transfer form template) is a company or solicitor document, and it is used to transfer the ownership of shares in a business from one person to another. This is normally done when someone sells their shares or wants to give them away .
Both the seller and the buyer need to sign the form, and it has to be sent to the company with the person’s name on it, along with a fee to have the ownership transferred and an updated certificate of ownership issued (the templates linked above are the lender of such a document).
The new owners will receive an updated share certificate with their name on it once the transfer is completed. This is basically just an updated document that states that the new person owns the shares instead of the previous one.
Key Elements of a Stock Transfer Form Template
A stock transfer form template is not a one-size-fits-all form. There are several different elements that must be included so all parties know the particulars of the stock transfer. Here is a list of the important components to consider adding to your stock transfer form template:
- Shareholder Information – The name, address and signature of the transferring shareholder(s) should be included on all stock transfer forms. If the company has share certificates, it may also have a space for the stockholder certificate number for easy reference.
- Share Details – Every stock transfer form should have blank spaces or fields for the exact number of shares being transferred and the date the original shares were issued.
- Seller Signature – Both the date of transfer and the selling shareholder’s signature must be included on all stock transfer forms. If applicable to your stock, the signatures of the corporate secretary and/or the approving directors may need to be included as well.
- Buyer Signature – While not always needed, the accepting shareholder of the shares may need to provide his or her signature as acceptance for the transfer of shares.
Filling Out a Stock Transfer Form: The Nuts and Bolts
Filling out a stock transfer form is a straightforward process that requires careful attention to detail. Below are the steps involved, along with tips for accuracy and legal compliance.
Complete the Form: Start by filling in the name of the company whose shares are being transferred. Include any relevant identification numbers such as the company’s registration number. Next, identify the registered shareholder by including their full name and address. If there is more than one shareholder, include the names and addresses for all parties. Be sure to indicate the number of shares being transferred and the price per share, if applicable. Include the details of the recipient or recipients of the shares, including their names and addresses.
Signing the Form: The shareholder(s) transferring the shares must sign the form to effectuate the transfer. In the case of joint shareholders, both parties must sign the document. If the shareholder is a company, an authorized officer must sign on their behalf. It is essential that the signature(s) be dated to establish when the transfer occurred.
Witnessing: While not always mandatory, it is a good practice to have the signatures witnessed. The witness should include their name, address, and occupation. This helps to prevent disputes over the authenticity of the signatures at a later date.
Company Seal (if applicable): Depending on the company’s articles, a company seal may be required on the stock transfer form to make it enforceable. This is generally the case for company shares.
Pay Stamp Duty: In many jurisdictions, there is a tax on the transfer of shares called stamp duty or stamp tax. Once the transfer is drafted and signed, the relevant stamp duty must be paid, and the stock transfer form must be stamped to indicate that the duty has been paid. Alternatively, the stock transfer form may be submitted to a local tax authority responsible for stamp duty for stamping.
Submit the Form to the Company: After paying the relevant stamp duty, the stock transfer form must be submitted to the company for registration. The company secretary or other named officer should keep a record of the stock transfer form in its register of members. The company should also issue a new share certificate in the name of the new holder and cancel the old share certificate.
Remember to keep a copy of the original stock transfer form for your records and to confirm with the company that the transfer has been duly registered.
Legal Aspects and Considerations of Stock Transfers
When it comes to transferring shares, numerous legal issues may arise. One of the most common concerns is the tax implications of the transfer. For example, a sale of shares could trigger a capital gains tax if the stock has appreciated, or if the shareholders are in a lower tax bracket, the transfer might not trigger any capital gains tax at all.
A transfer also has important implications for the company offering its securities to the public. Federal securities laws require companies to file disclosure with the Securities and Exchange Commission before selling their shares, including an annual report that discloses the company’s business affairs, executive compensation, and ownership structure, among other details.
The exempt securities rule, Rule 144, is a safe harbor under Section 4(a)(1) of the 1933 Securities Act, which exempts from the act’s registration requirement the resale of securities acquired in a private placement provided the transfer takes place no sooner than one year after acquisition. Rule 144 does, however, prescribe certain conditions to this exception in order to ensure the transfer does not actively contribute to the offering of securities to the public. Before the transfer of the stock, the selling stockholder must, among other things:
It is important for the sale of shares to comply with the federal securities laws. Failure to do so could result in penalties that require the company to repurchase the shares at the market price at the time of the share repurchase, plus reasonable attorney’s fees and costs.
The sale of shares can also implicate state securities law. Most states have adopted state laws that are related to the rules prescribed by the SEC. Before completing a transaction, confirm that both the state and federal rules have been satisfied.
Pitfalls Associated with Stock Transfer Forms
Stock transfer form templates are often designed to simplify the transfer process for both the issuing entity and the entity receiving its shares. Unfortunately, if the issuer or its shareholder isn’t careful, errors will occur in the use of stock transfer forms and could lead to adverse tax effect and other material issues. Here are some common mistakes involving stock transfer forms:
This is perhaps the most common error. If the issuer is not an S-Corporation or does not have any other tax agreement with its shareholders, then the shareholders should not care how the shares are transferred. However, if the issuer is an S-Corporation, then the shareholders must check the box for "Actual." If the shareholders check the box for "Proposed," then corporations and individuals will adversely be affected by corporate and personal income tax. Normally, the only shareholders that care on whether the box is checked for "Actual" or "Proposed" are the shareholders of S-Corporations.
Signing too quickly! The signer should read the form carefully and make sure he/she understands the stock transfer form completely before signing. Signing too quickly may lead to a signer signing sections or items that were not fully understood. This would lead to adverse legal issues later on.
Stock transfer forms are designed to be fairly non-ambiguous. If the shares held are common shares, there are virtually no alternatives for categories of shares. However, if the shares held are Series A or Series B preferred shares, the shareholder must confirm his/her actual holding. Many times shareholders will assume their holding is a certain class of shares, when in actuality the type of shares held varies. For example, if I have 100 Series A preferred shares, but I incorrectly think that I have 100 Series B preferred shares, then my stock transfer form will not correctly transfer the interest that I actually hold .
It is a good idea for the corporation to request a new W-9 from the shareholder to confirm address and social security number. Simply using the information from a previous W-9 is not the best procedure because the shareholder could have a change of address. Furthermore, the signer’s social security number may change and the corporation does not want to issue new shares using a wrong tax ID.
Another common mistake involving stock transfer forms is having corporate officers sign. However this is not the best practice. This may lead to future issues between the corporation and its shareholder. For example, what happens if the new shares are issued to the corporation and not the shareholder? When this occurs, sometimes the corporation will issue the shares back to the original shareholder. However, this creates more problems if the shareholder does not rightfully own the shares that were transferred.
Many individuals do not know this, but transfers back to the corporation without consideration is in fact, a gift. Thus, gifting without documentation can lead to serious tax issues. First, the individual giving the gift must then file a Gift Tax Return. Then, the individual receiving the gift, should complete a gift tax return to document how much has been gifted.
The corporation should request that the shareholder hold and retain the investor rights agreement and the stock transfer form until the shares are certified and placed on record. The corporation or its counsel should issue the stock certificates to the transfer agent so they can officially be placed on record. The stock transfer form should also contain the signatures of the officers certifying the signature. Perhaps the most common error involving stock transfer forms is signing the stock transfer form without checking the signer’s authority.
Disclosure is the key! The issuer of the shares should provide the stock transfer agent proof of corporate power, approval and authority to issue the shares.
Where to Access Quality Stock Transfer Form Templates
When seeking stock transfer form templates, the options are plentiful. However, only some of the forms available are suitable for professional use or both efficiency and compliance. To find those that will allow you to simplify and expedite the process of transferring ownership of company shares, explore the following options:
Free Web-Based Samples
Web-based stock transfer template samples are available for several legal origins and other factors. Even though they are free of charge, these forms require no personal information and have limited watermarking on the template itself. Likewise, they’re typically easy to edit to conform to your company’s particular formatting. Despite these advantages, they still pose significant hazards for the untrained user. This is partly due to the limited degree of support they tend to offer for the complex technicalities of stock transfers. Because of this, these samples are not always accurate for your exact type of stock or even your local laws. Printed in a generic format, they may even restrict other elements of your executed certificates.
Printable Commercial Samples
Commercial samples for stock transfers are available for a small fee. These are typically unattractive but are more appropriate for most professional needs. Some come with more advanced features for easing the transfer process, such as a semi-automated document handler that will prompt the user to add information to the correct locations. Others retain a simple format, but they stand out from free samples through the quality of their internal formatting and better compliance with local laws. While these documents still require a bit more careful editing than some users have time to contribute to the process, some of them are worth purchasing for the increased speed and enhanced accuracy.
Commercial Software
Software allows you to create stock transfer documents on a large scale, automatically filling in blank fields according to templates that can be set with relative ease. This software’s cost is competitive to that of preprinted stock transfer forms made and sold by service centers. However, bank, law office and government forms must sometimes be printed and supplied by the customer on-site or in advance. Where this software requires less information from the user in some situations, its purchase cost may be higher than that of the sample forms described above, especially for modestly sized orders. However, the types of facilities that must produce large quantities of stocks and bonds often find efficient local fulfillment a burden and prefer to invest in a single purchase that can handle all of their future needs.
Customizing a Stock Transfer Form
The stock transfer form template can be easily modified to suit specific needs or unique situations. By doing so, you ensure that the stock transfer form accurately represents the parties’ understanding of the terms of the transaction. Nonetheless, it is important that the form be updated in a way that complies with applicable state law in order to eliminate any potential ambiguity.
The first step in customizing your stock transfer form template involves isolating the relevant sections, including: the date of transfer, the transferor and transferee information, the number of shares, the exchange price, and any additional terms. Any clarifications that are specific to the situation should be made in this section. In order to comply with some state laws , additional provisions may be required. Addendums can also be created to further clarify the terms of the transaction. All parties should receive a signed copy of the updated stock transfer form.
In addition to including addendums, some parties choose to add a statement that indicates the parties understand that they have consulted with their own counsel for guidance relative to the preparation and execution of the stock transfer form. Although this is not an absolute, having an explicit statement of this nature helps to protect the parties from any future claims from the other party regarding a lack of understanding of the terms.