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Exploring dematerialised shares

13 October 2023

Embracing the digital era: Exploring dematerialised shares

The Digitisation Taskforce was established in July 2022 to progress the digitisation of shares and shareholding in the UK. Whilst the focus is on public companies with shares trading on a stock exchange, the Digitisation Taskforce have also considered whether the arrangements can be extended to private companies.

What are dematerialised shares?

Dematerialised shares, also known as electronic or paperless shares, are a modern form of ownership in the world of finance and investment. In the past, shares were represented by physical share certificates, which were prone to loss, theft and damage. However, with the advent of technology, dematerialised shares have emerged as a more secure and convenient alternative.

Dematerialisation refers to the process of converting physical share certificates into electronic form. This means that instead of holding tangible documents, investors can hold their shares in a digital format, stored in a central depository system. This system ensures the safekeeping and easy transfer of shares without the need for physical delivery.

Register of members

Under the Companies Act 2006 (CA 2006), a company is required to keep a register of members which is a record of its shareholders and their respective shareholdings.

A company with its shares traded on a platform will have a register of members comprising of:

  1. Issuer register of members: a register maintained by the company to record shareholdings of certificated shares; and
  2. Operator register of members: a register of maintained by CREST to record shareholdings of dematerialised shares.

Share certificates

Holding and issuing share certificates is common practice for companies to provide tangible proof of ownership to their shareholders. Share certificates are physical documents that represent a shareholder’s ownership of a specific number of shares in the company.

The Digitisation Taskforce has made three recommendations in its Interim Report (published in July 2023):

  1. Stop issuing paper share certificates: an existing provision under the CA 2006 could be used to prohibit the use of physical share certificates and require the use of CREST.

“S786(1) Regulations under this Chapter may make provision—

  • enabling the members of a company or of any designated class of companies to adopt, by ordinary resolution, arrangements under which title to securities is required to be evidenced or transferred (or both) without a written instrument; or
  • requiring companies, or any designated class of companies, to adopt such arrangements.”
  1. Mandatory conversion: requiring shares held in physical form to be transferred to CREST via a nominee.   
  2. Identify untraceable certificated shareholders: the Digitisation Taskforce outlined three possible approaches to dealing with residual certificated shareholders:
    • To maintain a nominee account for untraceable certificates shareholders.
    • Seek to amend the articles association to mandate compulsory conversion of shares which would then be sold in the market, proceeds of which should be kept like unclaimed dividends.
    • Transfer the proceeds of sale to an authorised reclaim fund.


Whilst the majority of shares are paid for in cash consideration, there are processes and requirements in place for buying shares on CREST for non-cash consideration. These may vary depending on the jurisdiction, regulations and individual circumstances of the transaction, however the general process will involve:

  1. Agreement: the buyer and seller agree on the terms of the share purchase, including the non-cash consideration. This could involve the exchange of assets, services or any other agreed-upon non-monetary form of consideration.
  2. Valuation: the non-cash consideration needs to be valued to determine its equivalent worth in relation to the shares being acquired.
  3. Documentation: the buyer and seller prepare the necessary documentation to formalise the share sale and purchase agreement.
  4. Transfer instructions: the seller’s broker or nominee submits a transfer instruction to CREST, indicating the details of the share purchase.
  5. Verification: CREST verifies the transfer instruction and ensures that it meets the necessary requirements and compliance standards.
  6. Settlement: Once the transfer instruction is approved, CREST facilitates the transfer of the shares from the seller’s account to the buyer’s account.

Stamp duty

Stamp duty is a tax imposed on the transfer of certificated shares calculated at the rate of 0.5% of the purchase price, rounded to the nearest £5. If the purchase price is £1,000 or less, you usually don’t have to pay any stamp duty. Following completion of a certificated share purchase using a stock transfer form, the buyer needs to notify HMRC of the transaction and settle the stamp duty due. It is an offence to register a transfer (and therefore the buyer to be a shareholder) until the stock transfer form has been duly stamped. This usually takes between 4-8 weeks.

Stamp duty reserve tax (SDRT) is a tax imposed on the transfer of uncertificated shares, calculated at the rate of 0.5% of the purchase price (whether consideration is below or above £1,000), rounded to the nearest penny (not to the nearest multiple of £5). SDRT is collected automatically by CREST so no manual payments or HMRC notifications from the buyer are required. Registration of the transfer occurs in real time.

This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Lydia Mills or write to us using the contact form below.

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