Companies with a share capital must have at least one shareholder when they are incorporated at Companies House. There is no statutory upper limit to the number of company shareholders, or ‘members’, you have during or after incorporation. You must, however, notify Companies House on the next annual confirmation statement (previously the annual return) when any member joins or leaves the company, or if their details change. It is also essential that your register of members is accurate at all times and updated when information changes.
How to appoint a new shareholder
You can add a new company shareholder at any point after incorporation. To do so, existing shares must be transferred or sold by a current member to the new person. Alternatively, you can increase your company’s share capital by allotting (issuing) new shares.
To transfer ownership, a stock transfer form must be completed with the following details:
- Registered name of the company.
- Class and value of stock being transferred.
- Number of shares being transferred.
- Name and contact address of current owner.
- Name and contact of new owner.
- Consideration money, or alternate form of non-cash payment, if applicable.
- Stamp Duty liability, if any money is exchanged.
- Signature of transferor or authorised person.
If money is paid for transferred stock, a copy of the transfer form should be sent to HMRC to be stamped. The new owner should pay the required Stamp Duty to HMRC. If no money is paid, there is no need to file this form.
If the company’s articles of association provide for pre-emption rights on the transfer of shares, then the members should waive their right to first refusal. Thereafter, the directors (or members if required by the articles) should accept the transfer and enter it into the register of members.
The new owner should be issued with a share certificate as proof of purchase. A copy of the stock transfer form should be given to both the transferor and transferee. The company should keep a copy of new and old certificates and the stock transfer form at its registered office or alternate inspection location.
Companies House will be notified of the transfer and details of the new owner when the next annual confirmation statement is filed. It’s usually recommended that you file a confirmation statement as soon as possible after a transfer, although this not a requirement.
Issuing new shares
If you want to create more shares instead of transferring existing ones, you must increase the capital of your company by ‘allotting’ new shares. You would normally do this when you need to raise additional funds without the need for existing shareholders to sell any of their stock. However, issuing new shares will dilute the percentage of ownership and control of the current owners.
To carry out an allotment, existing members should waive their right to pre-emption on the allotment of shares (unless the articles remove this requirement), the prospective members should deliver a letter of application to the company, and the board of directors (or members, if required by the articles) should accept the allotment and enter it into the register of members. Thereafter, you should use Form SH01 ‘Return of allotment’ to provide the following information:
- Company name
- Company Number
- The date(s) of the allotment(s).
- Class, currency and number of shares allotted.
- Nominal value of each unit.
- Amount paid, or due to be paid, per share.
- Details of any non-cash considerations (payments), if appropriate.
- Statement of capital reflecting the new allotment.
- Details of any shares allotted in a currency other that pound sterling.
- Prescribed particulars of rights attached to shares.
- Signature of the company director or other authorised person.
Form SH01 must be submitted to Companies House within one month of the allotment. Information about the new owner(s) should be provided to Companies House when the next confirmation statement is due. As before, however, it is usually recommended to file the confirmation statement straight after the allotment.
Note that, if the company has an authorised capital (a maximum number and value of shares that can be allotted) and this allotment will take the company above this limit, the members will first need to amend or remove this provision.
How many shares can a company shareholder take?
Shareholders must each take a minimum of one share. There is no right or wrong quantity to issue. If you are setting up a company on your own, you can issue just one share and own 100% of the business yourself. This means you will be entitled to all profits and you will be required to contribute the nominal value of your shares toward debts if the business cannot pay its bills.
If you plan to grow your business or bring in new partners at a later date, you should consider issuing more than one share when you register your company. This will enable you to sell some of them in the future, rather than having to create new ones. It is often a good idea to issue a quantity of 10 or 100 because it is easy to work out the percentage of ownership represented by each share. You can also sell smaller portions of the company to more people.
You must remember, however, that the number and value of issued shares determine the liability of the owners. Therefore, if you issue 100 units, you will be liable to pay £100 toward company debts until you sell some of your stock to new investors. This is not a tremendous figure, but if you decide to issue a greater quantity, your liability will increase accordingly and you will have to pay the total nominal value if the company becomes insolvent. Something to remember if you feel inclined to issue a phenomenal number of shares!
Removing company shareholders
If any member wishes to leave a company, his or her stock must be transferred or sold to someone else. The directors will be responsible for overseeing the transfer and updating member information at Companies House and in the statutory register of members.
Companies House can be informed about a shareholder leaving when the next confirmation statement is filed. Transfers should also be reported at the same time. A confirmation statement can be filed online through Companies House WebFiling or 1st Formations Company Manager.
Updating shareholders’ details at Companies House
The full names and contact addresses of the first shareholders, or ‘subscribers’, are disclosed on public record. Any person who joins after company formation need only provide their name and details of their holdings, unless they are also a person with significant control.
If a member’s name or holdings change at any point, or when a member joins of leaves a firm, Companies House must be notified on the next confirmation statement. You can file a statement online via WebFiling or 1st Formations Company Manager.
It is the responsibility of the director or secretary to ensure Companies House is notified of these changes and that company’s statutory register of members is updated accordingly.
What happens if a shareholder dies?
When a shareholder dies, the company shares they held form part of their estate in the same way that other forms of property would. The executors of the estate, who are confirmed by a grant of probate, then hold the authority to deal with the shares and to enact that person’s will. Forward planning to account for such an eventuality is important.
Protecting the company and its members
The provision of pre-emption rights is often included in the articles of association and shareholders’ agreement to give remaining members the opportunity to purchase shares from a deceased member’s beneficiary. Some company owners set up life assurance policies to enable their fellow members to purchase their holdings in the event of their death. This allows remaining members to retain control of the business and uphold the status quo, rather than passing such influential powers to an inexperienced beneficiary who may not possess the necessary skills to make critical decisions about strategy and operational activities.
Protecting the beneficiaries of shareholders
Whilst it is important to consider the future of your business, you also want to protect the rights and interests of those who inherit the shares of deceased members. If the articles provide for pre-emption rights, the market value of available shares can be paid to the deceased individual’s beneficiary. This provision can be drafted as ‘optional’, which allows remaining members to purchase or decline the available stock if they have the necessary funds.
If a life assurance plan is put in place, the proceeds of the policy will enable the remaining members to purchase available shares. Alternatively, the articles and shareholders’ agreement may allow for beneficiaries to maintain ownership of the stock and receive dividend payments, whilst removing their right to vote on business decisions. This option is often mutually advantageous for the business and its surviving owners, as well as the deceased member’s beneficiary.
Transferring ownership of shares
Whether shares are being transferred in absentia from a deceased person to their beneficiary, or from a beneficiary to an existing member, a stock transfer form must be used to legally transfer ownership.
If there is any Stamp Duty liability from the sale, a copy of the transfer form should be filed with HMRC. The new owner will also have to pay 0.5% of the sale value to HMRC.
Notifying Companies House
When a shareholder dies, you must inform Companies House when you file the next confirmation statement. Once the shares have been transferred to the new beneficiary, you should state the date on which the deceased person ceased to be a member, as well as the details of the person who now owns their stock. The latter stages of the process are the same as when a member leaves for any other reason.
What is a shareholders’ agreement?
Many companies choose to draw up a shareholders’ agreement. This is a legal document that outlines their rights and responsibilities, regulates their relationship with one another, confirms how the company should be managed, and clarifies the way in which decisions can and cannot be made. It is a useful document to put in place because it covers exceptional eventualities like death, which can create a number of problems for remaining members and the business as a whole.
An agreement usually includes provisions for pre-emption rights, which requires available shares to be offered to existing members before anyone else. If no such agreement is in place, shares could be offered to someone who lacks the necessary business knowledge and experience to support the company’s vision and objectives. If this were to happen, it could have a negative impact on the decision-making powers of existing members and the overall success of the business.
Key features and advantages of an agreement:
- Provides greater protection for owners by allowing more specific provisions than those contained in the standard articles of association.
- Provisions or arrangements can be included that apply to individual and current shareholders only – the provisions in the articles are generalised and apply to all current and future members.
- Provides an effective framework for resolving disputes between members.
- Unlike the articles, this type of agreement is private and confidential so the public has no access to.
- Demonstrates unity and stability, which is appealing to banks and investors.
- Protects the interests of shareholders and their beneficiaries in the event of death.
- Provides better protection for the rights and investment value of minority shareholders.
- Outlines dividend policies and the distribution of profits.
- Can specify decisions that require a 100% majority vote of the members.
- Clarifies the particulars of pre-emption rights.
- Outlines the terms and manner of each member’s investment agreement.
- Increase or restrict the powers of directors.
- Set out the terms of directors’ remuneration.
- Provides for the regulation and restriction of allotments or transfers.
- Outlines the terms of selling or closing the company.
How to arrange a shareholders’ agreement
Ordinarily, this agreement should be discussed and drawn up before or immediately after company formation. This reduces the potential for disagreements and internal conflicts further down the line, but it is still possible to introduce one at a later stage, whenever you like.
Standard agreement templates are available online. You can also create a bespoke agreement online with a variety of legal companies. However, we do recommend consulting a reputable solicitor for the most appropriate and up-to-date legal advice.
What is the last members list?
A Last Members List is the most recent listing of shareholders or guarantors provided by the company to Companies House. Since the introduction of the confirmation statement on 30th June 2016 (which replaced the annual return), there is no longer any need to provide a full list of shareholders unless there has been a change. As a result, you may have to go back quite a few filings in order to find the last full list.
Since the introduction of the confirmation statement on 30th June 2016, which replaced the annual return, there is no longer any need to provide a full list of shareholders. This information is now provided on the register of people with significant control and submitted to Companies House when the director files the annual confirmation statement.