As an entrepreneur, you are aware that shares are more than just ownership stakes. Shares are assets that can attract investors, bring in new funds as well as act as incentives for your key employees.
Let's say you are the sole owner of a thriving cafe. You plan to bring in new partners to join your business by offering them some ownership. You also plan to offer ownership to your dedicated key employees as a reward for their hard work. You believe that these steps will contribute to your business expansion.
But now, you face a question: how should you give them ownership? Should you provide them ownership through transferring your existing shares or opt for your company to create new shares for them? This is where the choice between share transfer and share allotment comes into play.
Think of share allotment like brewing a fresh pot of coffee, it is about creating new shares in your company. On the other hand, share transfer is like sharing a piece of your cafe's famous cake, it involves moving around the shares that already exist, transferring existing shares from one owner to another. To make the right call for your business's expansion, it is important to understand the fundamental differences between these two concepts.
We have laid out a table below, summarising the key differences between share allotment and share transfer for your better understanding:
Aspect | Share Transfer | Share Allotment |
Meaning |
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Special Purpose |
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Common Purpose |
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Price |
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Pre-Conditions |
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Specific Legal Documents |
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Common Legal Documents |
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Company Secretary Documents/Forms |
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Stamp Duty |
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Dilution |
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Understanding the differences between share allotment and share transfer is important for making well-informed decisions that align with your business goals. But this understanding is only the beginning.
The next step is known as "structuring your shares" which involves precise calculation to determine exactly how much of your company's ownership should be transferred or allotted and at what price. This task requires not only legal expertise but also financial expertise. Seeking guidance from accountant and financial valuer can assist to determine the ideal number of shares to be transferred or allotted and appropriate pricing. By collaborating with professionals, you are empowered to make the most informed decision to expand your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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