Understanding the difference between issuing shares and selling shares is essential for company directors, shareholders, and investors. While both involve the transfer or allocation of company equity, they serve very different purposes and have distinct legal and financial implications.
What does it mean to issue shares?
Issuing shares means a company is creating new shares and allocating them to individuals or entities. This is a way for a company to raise capital for business growth or operations, bring in new investors, or reward employees through ownership in the business.
For example, a start-up might issue new shares to a venture capital investor in exchange for investment capital. Alternatively, a growing company might issue shares to key employees under an Enterprise Management Incentive (EMI) scheme as part of a retention strategy.
Unlike selling shares—where existing shares are transferred between people—issuing shares increases the total number of shares in the company. Issuing new shares dilutes the ownership percentage of existing shareholders because the total number of shares in the company increases. For example, if a shareholder owns 50 out of 100 shares (50%) and the company issues 100 new shares to an investor, that same shareholder now owns 50 out of 200 shares—reducing their stake to 25%.
This process can significantly affect the company’s ownership structure and must be handled carefully to comply with legal requirements. Additionally, there might be the need to create a new class of shares with different rights as well.
Before issuing shares, directors should check the company’s Articles of Association and any shareholders’ agreement to confirm they have the authority to allot new shares and whether shareholder approval is needed. The issuance may also be subject to pre-emption rights, which require new shares to be offered to existing shareholders before being offered to outsiders.
Once the shares are issued, the company must update its statutory registers and file a Form SH01 with Companies House within one month.
What does it mean to sell shares?
Selling shares refers to the transfer of existing shares from one person or entity to another. Unlike issuing shares, no new shares are created; instead, ownership of the same shares simply changes hands. This is a common way for founders, early investors, or employees to realise value from their shareholding or to exit the business.
For example, a founder who no longer wishes to be involved in the company may sell their shares to a new investor or to other existing shareholders. Similarly, an employee who has exercised share options may choose to sell their shares to generate personal income.
Because no new shares are created when existing shares are transferred, the total number of shares remains the same, meaning there is no dilution to the ownership percentages of other shareholders.
In most private companies, selling shares may be subject to restrictions in the Articles of Association or shareholders’ agreement. These may require board approval, impose rights of first refusal in favour of existing shareholders, or set out other conditions that must be met before a sale can go ahead.
The legal process typically involves completing a stock transfer form, updating the company’s statutory registers, and issuing a new share certificate to the buyer. If the shares are sold for more than £1,000, Stamp Duty is usually payable by the buyer at a rate of 0.5% (rounded to the nearest £5).
Comparison table: issuing vs. selling shares
| Feature | Issuing Shares | Selling Shares |
| Creates New Shares? | Yes | No |
| Funds Go To | The company | The selling shareholder |
| Dilution of Ownership | Yes | No |
| Regulatory Filing | SH01 form | Stock transfer form |
| Stamp Duty | No | Yes (if over £1,000) |
| Purpose | Raise capital, incentivise employees | Exit, liquidity, ownership transfer |
When should you issue shares?
- Startups raising seed or venture capital: Startups often issue new shares to raise early-stage funding from angel investors or venture capital firms in exchange for equity. This provides much-needed capital to develop products, hire staff, or enter new markets.
- Growing businesses needing funds for expansion: Established companies may issue shares to fund business growth, such as opening new locations, launching new services, or entering overseas markets—without taking on debt.
- Employee share schemes (e.g., EMI options): Issuing shares under schemes like EMI can attract and retain talented employees by giving them a direct stake in the company’s success, aligning their interests with those of the business.
- Strategic partnerships where equity is exchanged for services or investment: In some cases, shares may be issued to strategic partners, advisers, or service providers as part of a broader commercial arrangement, helping the company build long-term relationships while preserving cash flow.
When should you sell shares?
- Founders or investors looking to exit or reduce their stake: Selling shares is a common route for founders or early investors who wish to realise a return on their investment, reduce their exposure, or prepare for retirement or other ventures.
- Employees exercising and selling share options: Employees who have been granted options under an EMI or other scheme may sell their shares once they are vested and exercised, often during a funding round or company sale.
- Private transactions between shareholders: Existing shareholders may buy and sell shares privately between themselves, often where one party wants to increase their holding or another wishes to reduce involvement in the company.
- Succession planning or transferring ownership to family or partners: Share transfers can form part of a broader succession plan, particularly in family businesses, where shares are passed on to children or long-term business partners as part of a gradual handover.
Legal and tax considerations
- Issuing shares must comply with the company’s Articles of Association and may require shareholder resolutions.
- Selling shares may trigger Capital Gains Tax (CGT) for the seller.
- Pre-emption rights can restrict both issuing and selling shares, requiring offers to be made to existing shareholders first
Whether you are issuing or selling shares, there are several legal requirements and potential tax implications to bear in mind. These can vary depending on your company’s constitution, the shareholders involved, and the structure of the transaction.
Issuing new shares must be done in accordance with the company’s Articles of Association and, where relevant, any shareholders’ agreement. In many cases, directors will need authority to allot new shares, either under the Companies Act 2006 or through a specific resolution passed by the shareholders. In addition, if the company’s constitution includes pre-emption rights, new shares must first be offered to existing shareholders in proportion to their current holdings, unless those rights have been disapplied by resolution.
Selling shares, on the other hand, is a private transaction between a seller and a buyer, but it is often restricted by the company’s internal rules. The Articles of Association or shareholders’ agreement may require the board’s approval or give other shareholders a right of first refusal before any sale to a third party can take place. It is essential for lawyers to check these documents before proceeding with any transfer to ensure that the transfer is effective.
From a tax perspective, a sale of shares may trigger Capital Gains Tax (CGT) for the seller, depending on how much gain is made and whether any reliefs apply (such as Business Asset Disposal Relief). Tax treatment can vary significantly depending on personal circumstances, and you may want to discuss the tax position and implications with your tax adviser or accountant before completing a sale.
In contrast, when a company issues shares, there is generally no immediate tax charge for the company itself, but care must be taken if shares are being issued to employees or directors. In those cases, the issue may give rise to income tax or National Insurance liabilities if the shares are treated as a benefit. Again, it is advisable to consult a tax adviser or accountant to understand the position fully and ensure the correct procedures are followed.
Finally, both issuing and transferring shares require updates to the company’s statutory registers, and depending on the transaction, filings may need to be made with Companies House, such as a Form SH01 for new share issues, or updating the register of members after a transfer.
Final thoughts
Understanding the difference between issuing and selling shares is vital for making informed decisions about your company’s equity structure. While both involve changes in share ownership, they serve very different purposes and carry distinct legal, financial, and tax implications.
Issuing shares is primarily a tool for growth and long-term investment. It allows companies to raise capital, bring in strategic partners, or incentivise key individuals—helping the business to expand without relying solely on debt. However, it also alters the company’s ownership structure and can dilute existing shareholders, so it must be approached with care and in line with legal requirements.
Selling shares, by contrast, is about transferring value. It allows founders, investors, or employees to realise the worth of their shares, exit the business, or plan for succession. Because it does not change the company’s overall capital, it avoids dilution but still requires careful attention to internal company rules and potential tax liabilities.
Both processes have an important role to play at different stages of a company’s lifecycle—from early fundraising rounds to exit planning or shareholder reorganisations. Choosing the right route will depend on your commercial goals, your company’s current structure, and the needs of the individuals involved. It is always advisable to seek tailored legal and financial advice before proceeding, to ensure the process is handled correctly and in your best interests.
How Moore Barlow can help
At Moore Barlow, our experienced corporate solicitors regularly advise founders, directors, and investors on all aspects of share issues and share sales. Whether you are looking to raise investment, restructure your shareholder base, or plan for an exit, we can guide you through the legal and practical steps with clear, commercial advice tailored to your goals. We understand that equity decisions are fundamental to your business’s future, and we are here to help you make them with confidence.
Please get in touch with our team if you would like to discuss your options—we would be happy to assist.
