Selling shares in a private company is not one transaction but several running in parallel: a commercial negotiation, a legal process, a tax analysis and a company law procedure. The commonest failure is treating it as the first of those alone — agreeing a price and a handshake, and then discovering that the articles require the shares to be offered to someone else first.
Start with the articles and any shareholders' agreement
Before anything else, read the constitutional documents. Most private company articles restrict transfers, and the restrictions bind regardless of what the parties have agreed:
- Pre-emption rights — existing shareholders must be offered the shares first, usually at a price set by a mechanism in the articles and often by reference to a valuation by the company's auditor;
- Directors' discretion to refuse to register a transfer, which in many private companies is absolute;
- Tag-along and drag-along provisions in a shareholders' agreement, which can entitle minorities to join a majority sale or compel them to;
- Compulsory transfer clauses triggered by leaving employment, bankruptcy or death, frequently at a discount to market value.
A sale completed without working through these is vulnerable to challenge, and the company can simply decline to register the buyer as a member — which means legal title never passes.
Share sale or asset sale
Where the whole business is being sold, the structure is the first substantive question and the parties want opposite answers.
A share sale transfers the company itself with everything in it — contracts, employees, licences and liabilities, known and unknown. Sellers prefer it: a clean exit, generally capital treatment, and the historic liabilities leave with the company. Buyers resist it for the same reason and price the risk into warranties, indemnities and a retention.
An asset sale transfers selected assets and leaves the company behind with its history. Buyers prefer it — they choose what they take and get a base cost in the assets. Sellers dislike it because the proceeds arrive in the company and a second tax charge arises on extracting them, and because contracts and employees have to be transferred rather than carried, with employment protection rules applying to the staff.
That structural difference is worth more than a turn of multiple in many deals, and it is settled at heads of terms.
The tax analysis, which decides itself years earlier
For an individual selling shares, the gain is a capital gain, taxed at 18% or 24% depending on the seller's income — or at the business asset disposal relief rate of 18% from April 2026 where the conditions are met. Those conditions include holding at least 5% of ordinary share capital and voting rights, a matching 5% of economic entitlement, being an officer or employee, and the company being a trading company, each tested for two years before the disposal. Shares from an EMI option are the exception that removes the 5% test altogether.
Two consequences follow. A shareholder who resigned last year has lost the relief and cannot recreate it; one diluted below 5% by a share issue has a narrower escape, in the election that lets them bank the gain accrued while they still qualified. And a company holding significant surplus cash or investment property may fail the trading test, which is why the balance sheet is worth reviewing well before a sale rather than at the term sheet stage.
Where consideration includes shares in the buyer, share-for-share treatment can defer the gain — with clearance available from HMRC in advance, which is worth obtaining rather than assuming. Deferred consideration and earn-outs have their own treatment depending on whether the right to future payment is ascertainable, and that determines whether tax falls due now on a valuation of the right or later on what is actually received.
The mechanics of completing
A transfer completes through a documented sequence: the sale agreement; board approval of the transfer; the stock transfer form, with stamp duty at 0.5% where the consideration exceeds £1,000 and the form sent to HMRC within 30 days; the register of members updated; the old certificate cancelled and a new one issued; and the change reported on the next confirmation statement.
The register entry is what actually transfers ownership. Everything else is evidence.
Selling a minority stake
A minority sale is the hardest version of this transaction, because the shares carry no control and there is rarely a buyer other than the existing shareholders or the company itself. Two routes exist. A share buyback, where the company purchases its own shares, is possible from distributable profits and subject to procedural requirements — and, where the conditions are met, can attract capital rather than income treatment, which is the whole point of doing it that way. Alternatively the remaining shareholders buy personally, which requires them to have the funds.
In both cases valuation is contested and minority discounts are real. An agreed valuation mechanism in a shareholders' agreement, written years earlier, is worth more at that moment than any argument available afterwards.
Acumon advises on structure, clearances, valuation and the tax analysis through selling your business, valuations and capital gains tax work, with the company law mechanics handled through company secretarial services. If your shareholding is near 5% or your role in the company has changed, check the relief conditions before anything else.