Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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If your company is buying, selling or transferring property (or other big-ticket assets) involving a director or shareholder, it’s easy to assume it’s “just a commercial deal”.
But in UK company law, some deals are treated differently - and they come with extra approval steps you can’t afford to skip.
That’s where the rules on substantial property transactions come in. If you get it wrong, you can end up with a transaction that is voidable (meaning the company may be able to unwind it), regulatory headaches, and serious director risk.
In this guide, we’ll walk you through what a substantial property transaction is, when the rules apply, and the practical steps small businesses can take to stay compliant.
What Is A Substantial Property Transaction?
A substantial property transaction is a specific category of transaction under the Companies Act 2006 (for UK companies). In plain English, it’s where:
- a company acquires a substantial non-cash asset from a director (or a connected person), or
- a company transfers a substantial non-cash asset to a director (or a connected person),
and shareholder approval is required before the transaction is entered into.
This is designed to prevent conflicts of interest and ensure transparency when company assets are being moved around in circumstances where directors could personally benefit.
What Counts As A “Non-Cash Asset”?
“Non-cash asset” is broader than just land or buildings. It can include:
- commercial property or residential property
- leasehold interests
- intellectual property (like trade marks or software rights)
- vehicles, machinery, equipment
- business assets (like a customer list or goodwill) being carved out and transferred
So yes - property is a common example, but it’s not the only one.
Who Is A “Director” And Who Is “Connected”?
The rules apply to transactions with:
- directors of the company
- directors of its holding company (if applicable)
- connected persons - which commonly includes spouses/partners, children, certain trusts, and companies controlled by the director
In practice, “connected person” can get technical. If there’s any overlap between company decision-makers and the buyer/seller, it’s worth slowing down and checking before you proceed.
When Does A Transaction Become “Substantial”?
Not every director-related asset transaction is a substantial property transaction. It becomes “substantial” when the value of the asset crosses certain thresholds.
Under the Companies Act 2006, shareholder approval is typically required if the asset is:
- more than £100,000, or
- more than £5,000 and also more than 10% of the company’s net asset value
Those thresholds are one reason these issues crop up a lot for SMEs: a property transaction can easily exceed £100,000, even for small businesses.
How Is The Value Worked Out?
Valuation isn’t always as simple as reading the price in the heads of terms.
Depending on the deal, you may need to consider:
- market value (not just what the parties agreed to)
- whether there are related transactions that should be viewed together
- what exactly is being transferred (eg freehold vs leasehold, fixtures and fittings, development rights, etc.)
As a practical step, it’s often sensible to obtain an independent valuation where the transaction is likely to be close to the threshold or where you expect scrutiny later (eg investors, auditors, or other shareholders).
Why Substantial Property Transaction Rules Matter For Small Businesses
For many small companies, the director is also the founder, a major shareholder, and the person making day-to-day decisions. That’s normal - but it’s exactly why the law imposes additional guardrails for certain transactions.
If you skip the approval process, the risks can be bigger than you’d expect, including:
- the transaction being voidable (meaning the company may be able to unwind it)
- director liability - directors may have to account for gains or cover losses
- shareholder disputes (especially where there are minority shareholders)
- fundraising or exit delays - issues often surface during due diligence when investors or buyers review historical transactions
- banking and accounting complications (particularly where the transaction impacts security, covenants, or balance sheet reporting)
And even if everyone in the business is on good terms now, problems often appear later when:
- a co-founder leaves
- new investors come in
- the company is sold
- a dispute arises and historic governance gets reviewed closely
This is why getting approvals “cleanly” at the time isn’t just box-ticking - it’s part of building solid legal foundations from day one.
How To Stay Compliant: A Step-By-Step Checklist
If you think your deal might be a substantial property transaction, don’t stress - compliance is manageable if you follow a structured process.
1) Identify Whether The Counterparty Is A Director Or Connected Person
Start with the basics: who is on each side of the deal?
If the buyer/seller is:
- a director, or
- a company owned/controlled by a director, or
- a close family member of a director,
treat it as a red flag and investigate further.
2) Confirm You’re Dealing With A Non-Cash Asset
Land and buildings will almost always qualify, but remember the definition is wider than “real estate”.
If the deal involves transferring a bundle of assets (eg “the company will sell its studio premises plus the equipment”), you may need to look at the package value.
3) Check Whether The Value Crosses The Threshold
Run the £100,000 / 10% net assets test. If you’re close to the line, consider an independent valuation.
Be careful with net asset value calculations - your accountant can often help here, but you’ll also want to consider how the Companies Act test applies to your specific facts.
4) Prepare A Shareholder Approval Process
Where approval is required, you’ll usually need an ordinary resolution (unless your articles of association require a higher threshold).
In many SMEs, the practical process can be quick - but you still need to document it properly and ensure the votes are counted correctly.
In particular, depending on the structure, the director (and any connected members) may not be able to vote on the resolution if their votes would be decisive. This is one reason it’s worth checking the shareholding and proposed voting position before you circulate the paperwork.
It’s common to support the approval process with board documentation as well, including a Directors Resolution noting the proposed transaction, conflicts, and the intent to seek shareholder approval.
5) Manage Conflicts Of Interest Properly
Even where shareholder approval will be obtained, you should still think about director duties and decision-making.
For example:
- Does the director need to declare an interest?
- Should the director abstain from voting at board level?
- Do your articles of association allow the director to participate?
These governance details matter, particularly where there are multiple directors or investors who expect robust conflict management.
6) Put The Transaction In A Proper Written Agreement
Substantial property transactions are not the time to rely on email threads or “handshake” deals.
Your documentation should clearly cover:
- the asset being transferred (with precise description)
- price and payment mechanics
- conditions precedent (including shareholder approval, if needed)
- warranties and disclosures
- completion mechanics and deliverables
It also helps to sanity-check the fundamentals of contract formation - offer, acceptance, consideration and intention - because disputes often turn on whether the paperwork is actually enforceable. A quick refresher on legally binding contracts can be useful when you’re pulling together approvals and completion documents.
What Documents And Approvals Do You Typically Need?
Once you’ve identified that the rules apply, the next question is usually: “What do we actually need to produce?”
While every deal is different, substantial property transactions commonly involve the following building blocks.
Shareholder Resolution
This is the key compliance step. The company’s members approve the transaction before it is entered into.
In practice, you’ll want to ensure the resolution includes enough detail to show what is being approved (not just “the property transaction”).
Board Minutes / Directors’ Resolutions
Even where shareholder approval is the “headline” requirement, board paperwork is still important for governance and audit trail purposes.
This is also where you can clearly document any:
- conflicts declarations
- abstentions
- authorisation to sign
- instructions to professionals (solicitors, agents, valuers)
Constitutional Checks
Your company’s constitution can affect what approvals you need, who can vote, and who can sign.
For many companies, this means checking the Company Constitution (articles of association) before you commit to heads of terms - especially if you have investor-style provisions, multiple share classes, or director decision-making restrictions.
Signing And Execution Formalities (Especially For Property)
Property transactions often require execution as a deed, and deeds come with stricter signing requirements than ordinary contracts.
If you’re signing deeds or documents at completion, it’s worth reviewing practical guidance on executing deeds so you don’t end up with a document that looks fine but is technically invalid.
It also helps to confirm who can witness a signature - because “we’ll just get someone in the office to witness” can be a risky approach if that person isn’t suitable or is connected to the transaction.
Shareholder Relationship Documents (If There Are Multiple Owners)
If you have multiple shareholders, substantial property transactions can quickly turn into shareholder relationship issues - particularly where one founder/director is perceived to be receiving preferential treatment.
This is one reason it’s smart to have a clear Shareholders Agreement in place that deals with decision-making, approvals, and conflicts in a way that matches how your company actually operates.
Common Scenarios Where SMEs Get Caught Out
Substantial property transaction rules often bite in “everyday” SME scenarios - not just sophisticated corporate deals.
Here are some common examples we see in practice:
A Director Sells A Property To Their Company
Your director owns a unit personally and wants the company to buy it (maybe to simplify the business structure, or because lenders prefer company ownership).
If the value is substantial, shareholder approval is likely required - even if the director owns most of the shares (and even if their own vote can’t be counted for these purposes).
The Company Sells An Asset To A Founder Below Market Value
Maybe the company owns a vehicle, a piece of equipment, or an investment property, and the founder wants to “take it out” of the company.
This can raise both company law issues (substantial property transaction approval) and tax implications. If the price is below market value, the risk of challenge and scrutiny increases.
Note: tax outcomes are highly fact-specific, and this article isn’t tax advice. It’s worth speaking to your accountant or tax adviser before you commit to the structure or price.
Group Restructures And Intra-Group Transfers
Even where the transaction is “within the group”, you still need to consider whether the counterparty is a director/connected person and whether the thresholds are met.
Some restructures also involve contract transfers (for example, a lease or supply agreement) where a deed is needed. Depending on the structure, a Deed of Novation might be relevant to properly move rights and obligations to the new entity.
Investor Due Diligence Reveals Missing Approvals
This is a big one. You might have done a property transfer years ago when the business was “just you”, with minimal paperwork.
Then an investor comes in and asks for:
- evidence of shareholder approval
- board minutes
- signed completion documents
- proof the company properly acquired title
If it’s missing, it can cause delays, price chips, or additional legal work at the worst possible time.
Key Takeaways
- A substantial property transaction is generally a company’s purchase or sale of a substantial non-cash asset involving a director or connected person, where shareholder approval is required under the Companies Act 2006.
- It’s not just “property” - substantial property transactions can include many types of valuable non-cash assets, from leaseholds to equipment and IP.
- The rules commonly apply if the asset is worth more than £100,000, or if it’s worth more than £5,000 and over 10% of the company’s net asset value.
- To stay compliant, you should identify conflicts early, check valuation thresholds, obtain the right shareholder approvals (with votes counted in line with the statutory rules), and document the deal properly in a written agreement.
- Execution matters - property-related documents may need to be signed as deeds and witnessed correctly, so don’t leave signing formalities to the last minute.
- Clean governance and record-keeping now can save major time and cost later, especially during fundraising, audits, or a business sale.
If you’d like help checking whether your deal is a substantial property transaction, or you want support preparing the shareholder approvals and transaction documents, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.
