2 min read
Why directors sell a partial stake
Common reasons include: raising growth capital without taking on debt; bringing in a strategic partner with industry connections; providing partial liquidity for a retiring founder while the business continues; or preparing the business for a future full sale by establishing a third-party valuation benchmark. Each motivation has different implications for how the transaction should be structured.
New share issue versus transfer of existing shares
A partial sale can be structured as a new share issue (the company creates new shares, receives cash, and the incoming investor's percentage is set by the pre-money valuation agreed) or as a secondary sale (an existing shareholder sells part of their holding to the incoming party, with cash going to the selling director rather than to the company). The right structure depends on whether the priority is to inject capital into the business or to give an existing director partial liquidity.
Protecting your position as majority shareholder
A well-drafted shareholders' agreement governs what minority investors can and cannot do: veto rights, information rights, anti-dilution provisions, and drag-along clauses that let a majority shareholder force a minority to sell in a future exit. Without such an agreement, minority shareholders still have statutory rights under the Companies Act 2006 that can complicate future decisions. Always instruct a solicitor experienced in shareholder agreements before any new investor completes.
Valuation and price negotiation
The price per share in a partial sale is driven by the agreed pre-money valuation of the whole company. Sellers typically argue for a higher earnings multiple; buyers for a lower one, plus a minority discount. Having a recent, independent business valuation reduces negotiation friction and gives both parties a credible starting point. Confirm any valuation basis and its tax implications with your accountant.
Frequently asked questions
Does a partial sale trigger any stamp duty?
Stamp Duty at 0.5% is payable by the buyer on share transfers above £1,000. A new share issue by the company does not attract stamp duty on the issue itself, though professional advice should confirm the position for your specific transaction.
Can we structure a partial sale so the investor has no voting rights?
Yes — non-voting or limited-voting share classes (such as B shares) are common in SME partial sales. The articles of association must be amended to create the new share class before the shares are issued.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.