Giving away shares in your business is a significant decision that can impact ownership, control, and financial outcomes. Whether you’re rewarding employees, bringing in investors, or gifting shares to family members, it’s essential to understand the legal, financial, and strategic implications.
Define Your Objectives
Before transferring any shares, clarify why you’re doing it. Common reasons include:
- Employee incentives – Share options or equity can motivate and retain key staff.
- Investment and fundraising – Attracting capital by offering equity to investors.
- Succession planning – Passing ownership to family members or partners.
- Bringing in a co-founder or key partner – Sharing equity to align interests.
It is important to consider the long term implications of the decision and the structure to ensure that whatever you do today, will work into the future without unintended consequences.
Understand Share Structures
Most businesses have different types of shares, each with varying rights and restrictions. Common structures include:
- Ordinary shares – Provide full voting rights and dividend entitlements.
- Preference shares – Often grant dividends before ordinary shareholders but may have limited voting rights.
- Non-voting shares – Can be used to distribute profits without affecting decision-making power.
Check your Articles of Association and Shareholder Agreements to ensure compliance with existing agreements.
Choose the Right Method
There are different ways to transfer shares, depending on the circumstances:
- Direct transfer – Selling or gifting existing shares to another party.
- Issuing new shares – Increasing the number of shares in the company and allocating them to the recipient.
- Share option schemes – Providing employees with the right to buy shares at a later date.
Consider the Tax Implications
Giving away shares may have tax consequences for both the giver and the recipient. Consider:
- Capital Gains Tax (CGT) – If shares increase in value, a transfer might trigger CGT.
- Income Tax – If given to employees, shares may be treated as taxable income under ’employment-related securities’.
- Inheritance Tax (IHT) – If shares are gifted, they may be subject to IHT depending on the time frame and recipient.
You should always consult a tax advisor to understand the options, optimise the structure and mitigate liabilities where possible.
Draft the Necessary Legal Documents
Ensure all agreements and filings are correctly documented, including:
- Share Transfer Form (Stock Transfer Form in the UK) – Required for transferring shares.
- Shareholder Agreement – Defines rights and obligations of all parties.
- Board Resolutions – Necessary for approving new share issuances.
- Companies House Filings – Update the company’s records to reflect ownership changes (UK-specific).
You may also need to update your company articles of association to reflect the shareholders’ agreement and ensure that there are no conflicts. Typically your lawyer would update these as part of the shareholders’ agreement and other resolutions.
Communicate and Manage Expectations
If you’re distributing shares among employees or partners, transparency is key. Clearly define:
- Vesting schedules – Ensures recipients earn shares over time, reducing risks of early departure.
- Exit strategies – Establish rules for selling shares, selling the business or cashing out.
- Voting rights – Set expectations on decision-making power.
Monitor and Review
After shares are given away, continuously monitor:
- Ownership percentages – Ensure strategic control remains aligned with business goals.
- Tax and compliance obligations – Stay updated on legal requirements.
- Shareholder relationships – Maintain clear communication and avoid conflicts.
Giving away shares in your business can be a powerful strategy when done correctly. Before making any decisions, seek legal and financial advice to align your actions with your business goals. You may also benefit from strategy advice to consider the drivers for the decision and the commercial impact and opportunity.
