How Can I Remove a Shareholder From My Company?
A shareholder can choose to leave whenever they like and for a reason that suits them. It could be that they want to re-invest the money, or to use it for personal reasons. Sometimes you may need to remove a shareholder in the event of their death. Whatever the reason is for their removal, the shares they held must be dealt with and cannot be left un-allocated.
When the shares are given up by the shareholder, they will need to be transferred to someone else; this can be done through sale or through gifting. When the new shareholder is taken on, you will need to update your company's Register of Members and inform Companies House (this will be done during your next Confirmation Statement).
So, how can you remove a shareholder in the following circumstances?
In order to transfer ownership of the shares, the company director will need to fill out a Stock Transfer Form (Form J30), and they will then need to complete and issue a share certificate to the new shareholder. The new shareholder will then pay the previous shareholder the full value of the purchase price.
Note: You must pay Stamp Duty on shares if:
- You buy shares through a Stock Transfer Form
- The transaction is over £1,000
You will need to pay 0.5% duty, which is rounded up to the nearest £5.00.
When selling the shares, there may be a Capital Gains Tax requirement. More information about this can be found on the Gov UK website.
The Death of a Shareholder
If a shareholder dies, their shares can be passed on to a named beneficiary, if outlined in their will. If this happens, the company director can fill out a stock transfer form in order to complete the handover of the shares. However, this may not be allowed if there are restrictions in place within the articles of association that prohibit share transfers to non-members.
Most companies will prepare guidance within their shareholder agreement that specifies what should happen in the event of the death of a shareholder. Usually it involves naming a beneficiary, or an agreement to make the shares available for purchase by existing shareholders.
Note: Because of the complexity surrounding the death of a shareholder, the company owner should consult a solicitor when drawing up their shareholders agreement.
There may come a time when the company director is in dispute with a shareholder and this could lead to the wanting to remove the shareholder. Forcing someone to give up their shares can be difficult and the shareholder has every right to keep them.
In order to resolve issues such as this, the company should have a departure procedure in their shareholders agreement. However, if the company has not had the forethought to do this, then trying to avoid conflict and negotiating any differences would be the only things that can be done in order to help the situation.
When a company wants to remove a minority shareholder, they have the option of buying back the shares. However, the shareholder can refuse to do this. So the next option is rather drastic and time-consuming. The company can be wound up (voluntarily).
If the minority shareholder holds less than 25% shares, a vote can take place and so long as there is a 75% majority, the company can pass a special resolution to wind up the company.
If the company is still solvent then you will need to start the members voluntary liquidation process. Once this has happened, you can start a new company and transfer all assets over to it. In the process, your minority shareholder has been removed. It's lengthy, it's drastic but it's effective when there are no other options.
The Register of Members
As a company owner or director, it is your responsibility to keep the register of members up to date. This is a statutory requirement which lists all the names and addresses of your members and guarantors (for companies that are limited by guarantee). It also shows the date which the member was registered with the company and shows the shares held by them. It also shows the date the shares stopped being held (when they have been transferred).
The register needs to be kept in a way that it is available for public inspection; and it is usually held at the registered office of the company (or at a service address).
Notifying Companies House
When you gain or lose a shareholder, the company needs to notify Companies House about the changes. You need to supply the name and date of the membership as well as the name and date of the departure. This is done through the annual confirmation statement.
All figures and information quoted in this post are correct as at the time of writing. It is recommended that you seek legal advice before carrying out any actions based on this post.
- 12 Nov 2019 - Warning Signs Your Partnership May Not Work
- 28 Oct 2019 - Cost Cutting Hacks for Small Businesses
- 11 Oct 2019 - Tips for Developing a Mission Statement
- 08 Oct 2019 - Tips to Open a Business Bank Account in the U.K. for your Limited Company
- 27 Sep 2019 - What Happens When a Small Business Owner Dies?