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Knowledge Hub for Growth

How the transfer of shares procedure works.

Jas Bhogal

As your business evolves, new investors come on board, and your team grows it’s likely that the transfer of share capital will become a more common occurrence. Although commonly seen across start-ups and high growth businesses, the transfer of shares procedure is fairly complex so seeking support from a specialist corporate solicitor is advisable. Here, we’ll help you learn more about the procedural aspects of the voluntary transfer of share capital in a UK private limited company between two parties, ensuring you fulfil necessary obligations and foresee potential restrictions that could hinder a successful transfer of shares.

COVID 19 update on the stamp duty process

What are the tax implications, are there contractual restrictions on the transfer of shares that you need to be aware of.

The rules governing the transfer of the share capital of a private limited company are set out in the Companies Act 2006 . The Act states that the transfer of shares should take place in accordance with the articles of association of the company whose shares are being transferred.

A transferor can transfer the legal and/or beneficial interest in the shares that it holds. A party holds a legal interest in shares if its interest or ownership in the shares is formally and officially registered by the company whose shares are sold.

By contrast, a beneficial ownership in shares relates to any interest or benefit in the shares that a party may have (on trust or by contract for example), even if it does not legally own the shares and they are held by another party. Usually a transferee will insist upon the entire legal and beneficial interest in the shares being transferred to it so that it has certainty that it holds all the rights to the shares that it is purchasing.

The articles are a publicly available, legally binding contract between the company and the owners of the share capital in the company (‘shareholders’) and are automatically legally binding for all shareholders. The articles are a ‘rulebook’ by which the company is governed and will set out how it should be managed, and shares transferred. Under the Act, the default articles for private companies limited by shares, called ‘model articles’, are articles that will apply to a company if it has not chosen its own bespoke articles or has not amended the default articles. A company’s articles will usually set out at least some of the rights and obligations of owners of the company in relation to the transfer of shares, including:

  • Pre-emption rights: These are rights given to existing shareholders of the company in the articles or in a company’s shareholders’ agreement that require a shareholder to first offer the shares being sold to the other existing shareholders or to other specific persons (as stated in the articles or the shareholders’ agreement). Pre-emption rights are fairly common in private companies as they are a way of ensuring that an unknown third party is not brought on board without the existing shareholders having a chance to effectively block them.
  • Directors’ right to refuse to register the transfer and make it proper and valid: Depending on the facts and circumstances surrounding the company, the directors may have a discretionary veto right to be able to refuse to register a transfer (the model articles contain such a provision). This right can be limited to particular events or circumstances depending on what is agreed by the company and its shareholders.
  • A restriction on the transfer of shares: This provision is often seen in companies that require a long-term commitment to the company or that have a limited number of key shareholders that are important to the business. This provision essentially ‘locks in’ shareholders by restricting their ability to transfer their shareholding for a certain period of time.

In addition to this, a company may also have a shareholders’ agreement in place which is a private legally binding contract between the shareholders (who all voluntarily choose to enter into it, in comparison to the articles which are automatically binding on shareholders) and usually the company. The agreement may set out the rights and obligations of the shareholders in more detail, often including detailed financial obligations and other restrictions on share transfers (such as ‘lock in’ periods discussed above). Unsurprisingly, restrictions on transfers in a private company can be a lot more detailed and far reaching than the restrictions on transfers in publicly listed companies.

The articles can provide that the shareholders and company can either comply with the provisions restricting the transfer or decide to waive them or disapply them. This can be done by the shareholders’ passing a resolution to disapply the provision or agreeing unanimously that the provision should be waived or disapplied. But this is something that the party who is buying the shares should check carefully, otherwise the transfer may not be effective. In practice, it is usual to see provisions restricting transfers to include an option for the existing shareholders to waive the restriction, either because of certain conditions not being met or on a discretionary basis.

What documents are required for the transfer of shares?

To effect a legal transfer of shares in a private company, once any restrictions in the company’s constitutional documents have been addressed, a transferor and transferee will need to make sure that the following documents are drafted and processed as follows:  

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What about stamp duty on transfer of shares?

Unless an exception applies, the Finance Act 1999 states that the transfer of shares in a private company will attract what is called ‘stamp duty’, a tax payable to HMRC. In practice, stamp duty is almost always paid by the purchaser of the shares (the transferee). Once stamp duty is paid, the stock transfer form will be stamped by HMRC and then it is ready to be presented to the company for registration.

Stamp duty is payable if:

  • The shares are existing shares in a UK company (or a foreign company with a share register in the UK)
  • If the transferee held an option to buy shares
  • If the transferee has an interest in the shares (such as a claim to part of the consideration for the transferring shares or other rights attaching to the shares)

Stamp duty tax is not payable:

  • If the shares are transferred for no consideration (with a value of nil)
  • If the shares do not exist and are being newly issued by the company
  • If the shares are bought in an ‘open ended investment company’ from the fund manager
  • Are part of units in a unit trust and are being bought from the fund manager

The current stamp duty rate is 0.5% of the consideration (value) paid for the shares, rounded up to the nearest multiple of £5. Stamp duty is not payable when the consideration for the transfer is £1,000 or less. If an exemption applies, the stock transfer form will be marked as being exempt from stamp duty and can be presented to the company for registration.

There is a ‘same day’ stamping service available in exceptional circumstances, such as unexpected or unforeseen circumstances where it is essential to have a document stamped immediately and these requests must be emailed to HMRC. The same day service cannot be used if the urgency could have been avoided by either party, or their agents or the law requires a party to apply to HMRC for a decision on how much stamp duty is payable (such as when a tax relief is being claimed). Shares that are transferred electronically will incur ‘stamp duty reserve tax’ which is generally at the rate of 0.5% of the consideration (value) paid for the shares.

If stamp duty is not paid then the stock transfer form will not be stamped. This means that the company whose shares are being transferred cannot register the transfer by law or issue a share certificate, and the directors can refuse to register the transfer. This is a reason why the transferee might want to make sure it has control over the whole process, ensuring that the transferring shares can be formally registered, and the transfer becomes effective.

On 25 March 2020, the UK government announced temporary changes as to how the stamp duty process should be conducted, as a result of precautions being taken due to the COVID-19 pandemic.

HMRC now no longer require stock transfer forms to be posted and physically stamped but an electronic or PDF copy of the stock transfer form should be sent to HMRC by email and payment of the applicable stamp duty should be made electronically (by Faster Payment, BACS or CHAPS – not by cheques as they will not be processed until the temporary measures end).

Signatures on the forms can be electronic signatures. HMRC will then email the transferee a letter confirming receipt of stamp duty, providing reference codes for the transaction, and stating that HMRC will not issue a penalty to the company for registering the transfer in its register of members. There is no timeframe at the moment setting out how long these temporary measures will be in place. The transferee will then be able to send the letter along with the stock transfer form and the transferor’s share certificate to the company for registration.

What are directors’ obligations on registering the transfer of shares?

Once they have been presented with a proper instrument of transfer, the directors of the company responsible for registering the transfer are under a statutory obligation to consider whether to refuse or approve the transfer.

If the directors approve and register the transfer, they can issue a share certificate in favour of the transferee certifying its status as a shareholder of the company. If the directors refuse to register the transfer, they must let the transferee know why they are doing so within two months of the transfer being notified to the company. If they do not do this, the company and each of its directors could be subject to fines.

What is the approval process?

Once a proper instrument of transfer (such as a stock transfer form) that has been executed and stamped has been delivered to the company whose shares are being transferred, the directors will either refuse or approve the registration of the transfer.

The transfer of legal title is only effective once the transfer has been registered in the company’s register of members (a register of all shareholdings in the company) and it is explicitly stated that the transferee is the new owner of all the shares being transferred. The date of transfer will be the date when the transfer is written up in the register and not the date of the transfer itself (i.e. when the consideration was transferred, and the transaction completed).

In accordance with the Act, the directors must provide the transferee with reasons as to why they are refusing to register the transfer. The grounds on which the directors might refuse to register the transfer will be limited to the rights set out in the company’s articles. Ss previously mentioned, the right to refuse to register can be discretionary or limited to specific reasons or triggers, such as if the stock transfer form has not been duly stamped when it needs to be or if the instrument of transfer is not accompanied by the valid current share certificate for the transferring shares. If the directors cannot agree on whether to refuse the transfer, the transferee will be entitled to have the transfer registered.

The directors are still under a duty to the company however and any discretionary powers they exercise should be for the best interests of the company and should promote the success of the company as a whole.

Once the directors have approved the registration of the transfer instrument, they will register the transferee as a new shareholder of the company by adding their name to the company’s register of members as the legal owner of all of the transferring shares.

Within two months of the transfer being lodged for registration, the company must then (unless otherwise stated in the Act) issue a share certificate which evidences the transferee’s legal title to those shares. The transferor may also have a share certificate and as part of the arrangements for the transfer, it is usual for the transferor to be required to send the transferee its share certificate (or to provide an indemnity for a share certificate if it is lost or damaged). This is so that it can be presented to the company along with the application to register the corresponding transferring shares.

Where there is a gap between a stock transfer form or instrument of transfer being given to the transferee and the registration of the transfer by the company, the parties can agree that the transferor will hold the shares on trust for the transferee.

To mitigate the risk that the transferee has a lack of control over its new shareholding, the transferee may grant a power of attorney to the transferor to deal with the shares on its behalf. Alternatively, the share purchase agreement may state that the parties agree that the transferee has a right to exercise the rights attached to the shares prior to registration of the transfer (such as the right to a dividend or the right to vote at meetings).

What needs to be filed following approval of transfer?

Once the transfer has been approved by the directors, registered in the company’s register of members, and the transferor’s name replaced with the transferee’s name as holder of the shares, a private company limited by shares will need to file the update of the transfer at Companies House within two months of the transfer being lodged.

The company will also need to update its register of transfers (a register of the transfers of shares of the company) and its register of persons with significant control (‘PSC register’) or legal entities with significant control (‘RLE register’).

Any changes to the PSC or RLE registers are legally required to be notified to Companies House. A transferee’s unregistered beneficial interest in the shares may cause them to have significant control over the company and so it may be the case that the PSC register is updated before the register of members reflects the transfer of legal title. The PSC register should be updated 14 days after the changes to the PSC register or RLE register are confirmed.

A private company may also opt to include the information on its PSC register in a central register held at Companies House instead of keeping its own register. A failure to update the registers is an offence by the company and its officers. The company will also need to include the updated list of shareholdings to Companies House as part of its next Confirmation Statement. 

The tax implications of a share transfer can be significant for both transferee and transferor and will often be carefully considered by the parties and their tax advisors prior to the transfer taking place.

Transferors that are corporate entities may be liable for corporation tax on any UK chargeable gain that arises on the disposal of the shares. Individual transferors may be liable for capital gains tax if they make a profit on the sale of the shares, unless they are eligible for tax reliefs such as entrepreneurs’ relief, gift hold-over relief, or rollover relief.

Transferees that are part of an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) can delay, reduce or eliminate capital gains tax. Enterprise Investment Schemes can delay or reduce applicable capital gains tax if a gain is used to buy unlisted shares in companies approved for EIS. Seed Enterprise Investment Schemes can allow a party to pay no capital gains tax on a gain of up to £100,000 if you use a gain to buy new shares in small early-stage companies approved for SEIS.

It is also important to check whether any income tax becomes chargeable for individual sellers and professional advice should be sought to ensure that the transfer of shares does not detrimentally affect a party’s business or personal affairs.

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Stock Transfer (Gilt-edged Securities) (Exempt Transfer) (No. 2) Regulations 1990

UNITED KINGDOM STATUTORY INSTRUMENT

1990 No. 2547

The Stock Transfer (Gilt-edged Securities) (Exempt Transfer) (No. 2) Regulations 1990

Made 10th December 1990

Laid before Parliament 17th December 1990

Coming into force 7th January 1991

Whereas the securities which are the subject of these Regulations are for the time being specified in the list in Schedule 1 to the Stock Transfer Act 1982 1 :

And whereas the person issuing such securities has agreed that the securities may be transferred through the medium of a computer-based system established by the Bank of England and The International Stock Exchange:

Now, therefore, the Treasury, in exercise of the powers conferred on them by section 1(1) and (4) of the Stock Transfer Act 1982 , and of all other powers enabling them in that behalf, hereby make the following Regulations:—

Citation and Commencement

1. These Regulations may be cited as the Stock Transfer (Gilt-edged Securities) (Exempt Transfer) (No. 2) Regulations 1990 and shall come into force on 7th January 1991.

Interpretation

2. In these Regulations:—

“the Bank” means the Bank of England;

“the CGOCGO” means the Central Gilts Office of the Bank;

“the CGOCGO Service” means the computer-based system established by the Bank and The International Stock Exchange to facilitate the transfer of gilt-edged securities; and “CGOCGO Service member” means a person who is entitled under a contract with the Bank to use the CGOCGO Service.

Exempt Transfers

3. Securities on registers kept by the Bank which have been issued in the United Kingdom, or which may from time to time be issued in the United Kingdom, by the Government of Barbados may be transferred by a CGOCGO Service member through the medium of the CGOCGO Service.

Norman Lamont

Two of the Lords Commissioners of Her Majesty’s Treasury

10th December 1990

(This note is not part of the Regulations)

These Regulations specify further gilt-edged securities, namely securities which are on registers kept by the Bank of England and issued in the United Kingdom by the Government of Barbados, which may be transferred by CGOCGO Service members through the CGOCGO Service. Other securities which may be so transferred are specified in the Stock Transfer (Gilt-edged Securities) (Exempt Transfer) Regulations 1985 (S.I. 1985/1145 , amended by S.I. 1990/1027 ), 1987 (S.I. 1987/1294 ), 1988 (S.I. 1988/232 ), 1989 (S.I. 1989/880 ) and 1990...

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Transferring shares

Company Law Solutions provides an expert service for all aspects of share capital for private companies, including issuing and transferring shares , share transfer provisions , setting up different classes of shares , converting shares from one class to another , consolidating and sub-dividing shares , companies buying their own shares and reductions of capital. More practical advice is available on the Company Law Solutions website.

Under the law of England and Wales, Scotland and Northern Ireland, s hares are items of property and, like any other property, can be sold or given away. The sale or gift will require a transfer of the shares. Shares were developed as a means of allowing a group of people to invest in a business project by buying shares of it. To be an attractive investment, the shares had to be transferable, so that the investor could sell the shares to retrieve their value. So shares are presumed to be capable of transfer, even in a private company, unless the company has restricted the right to transfer them by a provision in its articles, or the shareholder has entered into a contract, such as a shareholders' agreement, not to transfer the shares.

  • Transfer procedure
  • Restrictions on transfer

Model Articles provisions

Table a provisions.

  • New statutory provisions under CA 2006

The standard form required to transfer shares is a 'stock transfer form', duly stamped with payment of stamp duty (where necessary). A stock transfer from (in accordance with the Stock Transfer Act 1963) will be a proper instrument for the transfer of any shares in any company in England and Wales, Scotland or Northern Ireland.

Share transfer procedure

The shareholder (usually called 'the transferor') provides the transferee with a duly completed and signed stock transfer form and the share certificate in respect of the shares to be transferred. The transferee has the transfer stamped by paying the relevant amount of stamp duty (see below) and then sends the stock transfer form and the share certificate to the company. It is not lawful for a company to register a transfer of shares unless a duly stamped proper instrument of transfer has been delivered to it, or the transfer is an exempt transfer within the Stock Transfer Act 1982. This applies notwithstanding anything in the company's articles.

The company decides whether to accept the transfer. This should be done by a resolution of the director s unless the secretary has previously been authorised by the board to accept transfers. The company must accept the transfer unless there is some provision in its articles which restricts transfers or gives the board a discretion to decline them. If a company refuses to register a transfer it shall within two months after the date on which the transfer was lodged with it, send to the transferee notice of the refusal. See Companies Act 2006, sec177 below .

If the transfer is accepted by the company, the company will make the necessary entries in the register of members (and, if the company keeps one, the register of transfers) and issues a share certificate to the transferee. The certificate must be available within two months after the date when the transfer was lodged.

The company keeps the stock transfer form and the old share certificate (which should have 'Cancelled' stamped or written across it so that it cannot be re-issued inadvertently). No form or notice is sent to Companies House.

If the transfer is for part only of the transferor's shareholding, and the transaction is at arms' length, the transferor may not wish to part with a share certificate for the larger number of shares. Either the transferor could request the company for split certificates or a "certificated transfer", a stock transfer form certificated by the company to the effect that the certificate has been lodged. This procedure is rarely used in small private companies.

The transfer may affect the the identity or details of one or more people who have significant control of the company. Typically, this is where someone become, or ceases to be,  the holder of more than 25% of the voting shares, but the rules are much more complicated than that. If there is a change, the details must be entered on the company's PSC register and Companies House must be notified. See further Register of people who have significant control (PSC register) .

Stamp duty is payable on the sale of shares at a rate of 50p per £100 or part thereof. It is payable on the full amount and is subject to a minimum amount of £5. There is no exempt band. If the shares are transferred for consideration below £1,000 or by way of a gift or settlement, exemption can be claimed by completing and signing the reverse of the form. Stamp duty is paid by taking or sending the form to the stamp office of the Inland Revenue.

Restriction on transfer

These will depend on the company's articles . The Model Articles have a restriction, but Table A (from 1981) does not. In practice most private companies will want some control over the transfer of their shares. Provisions vary from a simple power for the directors to decline any transfer (as found in the Model Articles) to pre-emption provisions, free transfers to family members and even provisions for enforced transfer in certain circumstances (e.g. if the shareholder ceases to be a director). Having the right provisions in the articles can be vitally important. Company Law Solutions can advise and draft any required provisions.

Share transfers 26. (1) Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the directors, which is executed by or on behalf of the transferor. (2) No fee may be charged for registering any instrument of transfer or other document relating to or affecting the title to any share. (3) The company may retain any instrument of transfer which is registered. (4) The transferor remains the holder of a share until the transferee's name is entered in the register of members as holder of it. (5) The directors may refuse to register the transfer of a share, and if they do so, the instrument of transfer must be returned to the transferee with the notice of refusal unless they suspect that the proposed transfer may be fraudulent.

Transfer of shares 23. The instrument of transfer of a share may be in any usual form or in any other form which the directors may approve and shall be executed by or on behalf of the transferor and, unless the share is fully paid, by or on behalf of the transferee. 24. The directors may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve and they may refuse to register the transfer of a share on which the company has a lien. They may also refuse to register a transfer unless - (a) it is lodged at the office or at such other place as the directors may appoint and is accompanied by the certificate for the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer; (b) it is in respect of only one class of shares; and (c) it is in favour of not more than four transferees. 25. If the directors refuse to register the transfer of a share , they shall within two months after the date on which the transfer was lodged with the company send to the transferee notice of the refusal. 26. The registration of transfers of shares or of transfers of any class of shares may be suspended at such times and for such periods (not exceeding thirty days in any year) as the directors may determine. 27. No fee shall be charged for the registration of any instrument of transfer or other document relating to or affecting the title to any share. 28. The company shall be entitled to retain any instrument of transfer which is registered, but any instrument of transfer which the directors refuse to register shall be returned to the person lodging it when notice of the refusal is given.

Sec771, Companies Act 2006 provides a statutory procedure on a transfer being lodged

(1) When a transfer of shares in or debentures of a company has been lodged with the company, the company must either- (a) register the transfer, or (b) give the transferee notice of refusal to register the transfer, together with its reasons for the refusal, as soon as practicable and in any event within two months after the date on which the transfer is lodged with it. (2) If the company refuses to register the transfer, it must provide the transferee with such further information about the reasons for the refusal as the transferee may reasonably request. This does not include copies of minutes of meetings of directors. (5) This section does not apply- (a) in relation to a transfer of shares if the company has issued a share warrant in respect of the shares (see section 779); (b) in relation to the transmission of shares or debentures by operation of law.

The second most common restriction which is often included in articles is a pre-emption provision, i.e. that shares must be offered to existing shareholders in proportion to their present holdings. Note that the statutory pre-emptive rights in CA 2006, sec561-577 apply only to allotments of shares. (See related topic: What are pre-emptive rights? )

There may be other provisions, e.g. that shares are freely transferable to other members, or members of the family (defined) of the shareholder, but that other transfers may be refused by the directors. There can be provisions that a person who ceases to be a director has to transfer their shares.

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stock transfer act 1982

Business Advice, Investing

Guide to completing a stock transfer form.

Allison S Robinson | 12 September 2022 | 1 year ago 0 0 0

how to complete a stock transfer form

What Are Stock and Shares?

stock markets

What Is A Stock Transfer?

Stamp duty on stock transfers, certificate 1, certificate 2.

  • Shares are received as a gift.
  • Shares are transferred from a spouse or civil partner when married or entering into a civil partnership. Likewise, if a marriage or partnership is dissolved.
  • Shares are transferred as collateral for a loan or transferred back when the loan has been prepared.
  • Shares that are transferred by a liquidator as part of a settlement to shareholders should a company be wound up.

What Are The Reasons To Perform A Stock Transfer?

  • In exchange for cash payment
  • To write off debt payments
  • Transferring shares on behalf of an existing shareholder
  • Individual shareholders holding excess shares
  • In exchange for goods or services
  • Passing on the family business by g ifting shares to family members
  • Transferring between business partners
  • A company changing its corporate structure
  • Tax purposes

What Is The Procedure for Share Transfers?

  • The shareholder, in this case, called the transferor, shall provide the transferee with a completed and signed stock transfer form and the share certificate of the shares that are to be transferred.
  • The transferee must have the transfer stamped by paying all necessary stamp duty and then sending the stock transfer form and the share certificate to the company. It is illegal for a company to register a transfer of shares before a stamped and proper instrument of transfer has been submitted to it, or the transfer is an exempt transfer within the Stock Transfer Act 1982 . This applies notwithstanding anything in the company’s articles.
  • Once the form has been submitted, the company makes a decision whether to accept or reject the transfer. Provided the secretary has been authorised in advance by the board to accept transfers, this decision shall be made by a resolution of the directors. Barring a provision in its articles that constrains transfers or gives the board the option to decline them, the company is required to accept the transfer.  If a company declines to register a transfer, it is obligated to send a notice of refusal to the transferee within 2 months of the date on which the transfer was requested. (See Companies Act 2006, sec177)
  • Should the transfer is admitted by the company, the company shall make all requisite entries in the register of members and the register of transfers, should the company have one, and then issue a share certificate to the transferee. As with the notice of rejection, the company must provide the certificate within 2 months of the original filing date.
  • The company will keep the stock transfer form and the original share certificate. The original share certificate must have ‘Cancelled’ stamped or written across to prevent it from unintentionally being reissued. No form or notice is required to be sent to Companies House.
  • Should the shareholder only want to transfer a portion of their shares, the transferee may not wish to part with the share certificate for the greater amount of shares. In this case, the transferor could solicit the company for split certificates or a “certificated transfer”. This is a stock transfer form certificated by the company confirming that the certificate has been submitted.
  • The identities or details of one or more people who have significant control of the company may be exposed by the transfer. Usually, this is where an individual becomes, or stops being, the bearer of more than 25% of the voting shares. Any changes in the details are required to be entered on the company’s PSC register and the Companies House is required to be informed.
  • Once the transfer form has been submitted, HMRC will process it in 15 to 20 working days. If information is missing or incorrect, or more information is needed for processing, they will contact the relevant parties stated on the form.

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Filling out the Stock Transfer Form

Consideration money, full name of undertaking, full description of security, number or amount of shares, stock or other security.

stock transfer act 1982

Names and Addresses Of All Registered Shareholders

Signature(s).

  • Legal personal representatives signing on the behalf of the estate of a deceased shareholder
  • A Power of Attorney has been registered with the company. In this instance, the attorney is permitted to sign on the behalf of the seller
  • A corporate shareholder registered in England, Wales or Northern Ireland that stipulates a combination of officers must sign. Individual officers must state the capacity in which they sign and that they are signing for the company.

Names and Addresses of Person(s) Receiving the Shares

Stamp or name and address of person lodging the stock transfer form.

transferring stocks

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