Allotment vs transfer of shares: what is the difference

Allotment: creating new shares

An allotment is the creation and issue of new shares. When a company allots shares it increases its issued share capital, so there are more shares in total after the allotment than there were before. This is how a company raises fresh capital, brings in an investor, or gives equity to a new joiner. Because new shares are created, the existing shareholders each own a smaller slice of a larger pie. That reduction in percentage ownership is called dilution.

The directors need authority to allot. Under section 550 of the Companies Act 2006, where a private company has only one class of shares, the directors may allot shares of that class unless they are prohibited from doing so by the company's articles. Where that does not apply, section 551 requires the directors to be authorised either by the company's articles or by a resolution of the members. Any such authorisation must state the maximum number of shares that may be allotted under it and the date on which it expires, which cannot be more than five years ahead.

Once shares are allotted, the company must tell Companies House. Section 555 of the Companies Act 2006 requires a limited company to deliver a return of allotment to the registrar within one month of making the allotment. That return is filed on form SH01, described by gov.uk as the return of allotment of shares used to give notice of shares allotted following incorporation. The return must include a statement of capital showing the total number of shares, their aggregate nominal value and the rights attached to each class.

Transfer: moving existing shares

A transfer moves shares that already exist from one person to another. Nothing new is created, so the total issued share capital does not change. If a shareholder sells or gives away 100 shares, those same 100 shares simply change hands. The company's overall share count is identical before and after, which means a transfer does not dilute the other shareholders in the way an allotment does. What changes is who sits on the register of members.

A transfer of certificated shares in a private company is normally carried out using a stock transfer form, commonly known by its reference J30 for fully paid shares. The seller completes and signs the form with the buyer's details, the number and class of shares and the consideration. The buyer sends the form to HMRC if Stamp Duty is due, and the company then updates its records. Legal ownership passes when the buyer's name is entered in the register of members.

Unlike an allotment, a transfer does not require an SH01, and the stock transfer form is not filed at Companies House at all. It is an internal document lodged with the company. The change of shareholder is reported to Companies House later, through the company's next confirmation statement, rather than as a standalone event. The company must, however, keep its register of members up to date, because that register is the definitive record of who owns the shares.

Side by side: the key differences

The cleanest way to see the difference is to line the two routes up against each other. The table below compares what actually happens, the form you use, what you file and where, whether Stamp Duty can apply, and the effect on the ownership split. Read down each column and the split personality of the two processes becomes obvious.

Notice in particular the filing column. An allotment produces a Companies House filing, the SH01, on a strict one month clock set by the Companies Act 2006. A transfer produces no dedicated Companies House filing; the paperwork instead goes to the company internally and, if the consideration is high enough, to HMRC for Stamp Duty. That single distinction drives most of the practical differences between the two.

Stamp Duty on transferring shares

Stamp Duty is the main tax to watch when you transfer shares, and it does not arise on an allotment at all. According to gov.uk, when you buy shares using a stock transfer form you usually pay a tax or duty of 0.5% on the transaction, and you will pay Stamp Duty if the consideration is over £1,000. So a transfer where the buyer pays £1,000 or less falls below the threshold and no Stamp Duty is due.

The 0.5% is calculated on the consideration, meaning the amount paid for the shares, and HMRC guidance states that the amount is rounded up to the nearest £5. So a purchase of shares for £6,050 would give Stamp Duty of £30.25 rounded up to £35. A purchase for exactly £1,000 sits at or below the threshold, so no Stamp Duty is payable, whereas a purchase for £1,001 crosses it and becomes chargeable.

Timing is strict. HMRC requires you to send the stock transfer form and pay the Stamp Duty within 30 days of the transfer being signed and dated. The form is emailed to HMRC's Stamp Duty mailbox rather than posted, since the old physical stamping system was permanently withdrawn. Getting this wrong can cause delays, and HMRC specifically lists failure to round the duty up to the nearest £5 as a common error that holds up processing.

Because Stamp Duty is a real cost that can affect the price and timing of a deal, it is worth building the calculation into your planning early. If you want help getting the incorporation and share structure right from the outset, our company formation service sets your company up cleanly from day one.

Pre-emption rights: the shareholder safeguard

Pre-emption rights are a protection that mainly bites on allotments, and they are one more reason the two routes differ. Section 561 of the Companies Act 2006 says that before a company allots equity securities to a new person, it must first offer them to existing ordinary shareholders in proportion to their existing holdings, on terms at least as favourable as those offered to the outsider. In plain terms, existing owners get a first refusal so that they can maintain their percentage and avoid being diluted against their will.

The company cannot proceed with the allotment to the outsider until the pre-emption offer period has expired or every shareholder has accepted or refused. Shareholders can, however, waive their rights, and a company can disapply the statutory pre-emption regime through its articles or by a special resolution, which many private companies do to keep fundraising quick. Because pre-emption is tied to the creation of new equity, it is central to allotments and largely irrelevant to a straightforward transfer of existing shares.

Transfers can still be restricted, but the source of the restriction is different. Rather than the statutory pre-emption rules in section 561, restrictions on transfer usually come from the company's own articles or a shareholders' agreement, which may give existing members a right of first refusal before shares are sold to an outsider. Always check the articles before you transfer shares, because a transfer made in breach of them can be refused by the directors.

Choosing the right route

The right route follows the goal. If the company needs new money or wants to hand equity to someone without any existing shareholder giving up their own shares, that points to an allotment: new shares are created, the recipient pays the company, and the existing owners accept some dilution. If instead a shareholder is leaving, selling out, or passing shares to a family member or co-founder, that is a transfer: no new shares appear, and value moves between the individuals rather than into the company.

There are also knock-on consequences worth weighing. An allotment brings a hard one month deadline to file the SH01 and, where relevant, the pre-emption process to run first. A transfer brings the Stamp Duty question and the 30 day HMRC deadline, plus a duty to update the register of members and, in due course, the confirmation statement. Neither is difficult, but each has its own trap for the unwary, and mixing the two up leads to the wrong forms and missed filings.

If you are unsure which applies to your situation, or you are setting up a company and want the share structure right from day one, it is worth taking advice before you commit. Our team can talk you through your options and the practical steps for each.

Conclusion

Allotment and transfer are two different tools for two different jobs. Allotment creates new shares, raises capital or brings in a new owner, dilutes the existing shareholders, and is reported to Companies House on form SH01 within one month under section 555 of the Companies Act 2006. Transfer moves existing shares between people, leaves the total share count unchanged, does not dilute anyone else, and is handled through a stock transfer form rather than a Companies House filing. Getting the label right at the start tells you which forms, deadlines and taxes apply.

Before you transfer shares, run the two checks that catch most people out: whether the consideration is over £1,000, which triggers Stamp Duty at 0.5% rounded up to the nearest £5 and payable to HMRC within 30 days, and whether the company's articles restrict the transfer. Before you allot, check the directors' authority and any pre-emption rights, then diarise the one month SH01 deadline. If you would like a company set up with a clean share structure, or help deciding between the two routes, get in touch with our team.

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