Shareholders can leave a company at any time for a number of reasons. Perhaps they’d like to recoup an investment, remove their association from a company or must simply be removed due to death.
Whatever the reason, their shares need to be transferred by sale or gift to someone else, because you cannot have unallocated shares in your company.
The new shareholder’s details should be recorded in the company’s register of members. Companies House must also be notified on the next confirmation statement (formerly the annual return) to allow them to update the public register.
Transferring ownership of shares
The process of selling or gifting shares is initiated through a Stock Transfer Form. This Stock Transfer Form should then be submitted to the board for their approval.
This should be in line with any provisions stipulated in the company’s articles of association, such as pre-emption rights.
When the transfer is approved, a share certificate should then be given to the new shareholder. You can download a free share certificate template by clicking here.
The death of a shareholder
If a shareholder dies, the shares form part of their estate. The executors of the will then enact their will, signing the Stock Transfer Form in this capacity, and again it befalls on the board to accept the transfer (taking into account any requirements under the company’s articles of association) and update the Register of Members as appropriate.
Many companies include provisions in a shareholders’ agreement to deal with the death of a shareholder. It is common for an agreement to dictate that, upon the death of a shareholder, his or her shares will pass to a specific person or be made available for purchase by the company or existing company members.
The death of a shareholder is a particularly complex area for many companies, so it really is best to consult a solicitor and prepare an effective shareholders’ agreement that provides clear resolutions for the transfer of shares due to death.
Forcing a shareholder to leave
Shareholder disputes can cause a number of problems, so do try to avoid them as best you can. It’s incredibly difficult to force members to leave a company. After all, they are under no obligation to sell their shares unless the shareholders’ agreement or articles are well-drafted to include a specific departure procedure.
The first course of action you must take to resolve an issue should be negotiation. The majority shareholders could offer a fair value for the minority’s shares. If they refuse to negotiate, you could then take drastic measures by winding up the company; however, you can only do this if the minority has less than 25% of the issued shares. You will need a 75% majority of shareholder’s votes to pass a special resolution to wind up the company.
If the company is solvent, winding up the company may be a feasible option. You can start a members’ voluntary liquidation and transfer the company’s assets to a new company that excludes the minority. This can be costly and time-consuming, but it may be the only course of action in certain situations.
Best advice: avoid this potential nightmare by drafting a sound shareholders’ agreement when the company is set up. Otherwise, consult a solicitor for professional advice.
Updating the register of members
Every limited company must keep a register of members. This statutory item is used to record the names and addresses of all members (or guarantors if the company is limited by guarantee), the date they were registered as a member of the company, details of the shares they hold and the date they ceased to be a member (where applicable).
Shareholders become members on the date they purchase shares. They cease to be members on the date their shares are transferred to someone else.
It is the company director’s responsibility to ensure this register is accurate, up-to-date and kept available for public inspection at the company’s registered office or alternative inspection location.
Notifying Companies House
Companies House should be notified when a shareholder joins or leaves a company. This is the responsibility of the director or company secretary.
You must also provide the name and date of membership or departure of all new shareholders in Part 4 of the next confirmation statement. You can update the statement before the next one is due if preferred, although it is usually recommended to submit one immediately after the transfer.