Shareholders may decide to leave a company for a variety of reasons. Irrespective of the actual reason, the shares which they own must be transferred through gift or sale to another person, since companies cannot have unassigned shares.
Details of the new shareholders need to be recorded within the members register of a company. The registrar needs to be notified on the next confirmation statement as well to enable them to update the public record.
Transferring share ownership:
A Stock Transfer Form is essential when you want to gift or sell the shares of your limited company. This form then needs to be sent to the board for validation.
This process needs to be in accordance with the provisions included in the model articles of the company, for example, pre-emption rights.
As soon as the transfer is validated, share certification needs to be handed over to the next shareholder.
If a shareholder dies, his/her shares are likely to become part of their estate. Their executors will then have to enact the will and sign the Share Transfer Form. Finally, the board members will need to authorise the share transfer (considering any requirements as per the model articles) as well as update the members register.
Some companies prefer to add clauses in a shareholders’ contract that can be applied if any of the shareholders dies. It is typical for a contract to state that after a shareholder dies, their shares may pass to a particular individual or can be purchased by existing members or the company. This is actually one of the most challenging areas for a number of companies, so it is usually best to get in touch with a solicitor and plan a proper shareholders’ contract that offers clear resolutions for share transfer if one of the shareholders dies.
Disputes with company shareholders may result in a number of issues, so it is best to avoid them whenever possible. It’s not that easy to force partners to exit a company as they cannot be obligated to sell the shares they own except where the model articles or shareholders’ contracts are drafted so as to include a particular departure undertaking.
The initial course of action that needs to be taken for resolving any such issue is negotiation. Most shareholders are likely to offer good value for the shares of minorities. If they refuse negotiation, it is possible to take big decisions by winding up your company; however, you will only be able to do this if the minority owns no more than 25 percent of the entire shares. It’s necessary to own 75 percent of shareholders voting before a special resolution can be passed in favour of winding up the business.
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If the business is solvent, terminating it entirely may be an alternative solution. You may start the voluntary liquidation of members and transfer your company’s assets to another company which disregards the minority. However, the process is likely to be time-consuming and costly. But it could be the only choice in some cases.
We would highly recommend that you avoid such a nightmare by carefully drafting your shareholders’ contract during the incorporation of your company. As an alternative, you may also take assistance from a solicitor for proper guidance.
Updating the members’ register
Each limited firm is required to keep a member register. This is a statutory item that can be used for recording the names as well as addresses of each company member, the date of their registration as a company member, details of the shares which they own, and also the date when they ceased from their position (if applicable).
Adding shareholders to the company
Shareholders automatically become members the moment they purchase shares in your company. They are no longer a member when they decide to transfer their shares to another individual.
It is the responsibility of the company director to make sure the register is updated and accurate. This will also be accessible to the public for inspection at the registered office address of your firm.
Notifying the registrar
It is important to notify the registrar about the joining date as well as the departure date of members. This must be done by the secretary or the director of the company.
You also need to send the name and departure or membership date of each new shareholder in the fourth part of the next confirmation statement. The statement can be updated before its due date, even though it’s typically suggested to submit one right after the share transfer takes place.
Our online company secretarial software makes it easy to add or remove directors. Click here to sign in or import your company.