The shareholders of a company established in the UK can be changed at any time when all parties are happy with the decision. If not, then the process is a little more complex and either way, certain documents must be submitted. In this article, we give a brief overview of how to remove a shareholder from a limited company.
Removing a shareholder from a Limited Company can be necessary for many reasons. Shareholders can choose to leave their company 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. Regardless of the reason, their shares must be transferred through a gift or sale to another person or a company as it’s not possible just to delete the shares from the company.
The new shareholder information must be recorded in the company’s register of members. Your company must also notify Companies House of the change. This can be done via submitting the annual Confirmation Statement.
The shares can be gifted or sold to other individuals by using a Stock Transfer Form. The company’s director oversees filling in this form to officially transfer ownership from one individual to another. Therefore, a share certificate must be given to the new shareholder(s), and if necessary, they will need to pay the purchase price to its initial owner.
Shareholders 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 if you make profit. More information about this can be found on the Gov UK website.
The Death of a Shareholder
Sometimes shares must be transferred to somebody else for sad reasons. If a shareholder dies, the ownership of 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. However, this may not be allowed if there are restrictions in place within the articles of association that prohibit share transfers to non-members.
Many companies include provisions in a shareholder’s agreement to deal with the death of a shareholder. It is common for an agreement to dictate that upon the death of a shareholder, the shares will be passed on to a specific person or be made available for purchase by the company and their existing company members.
The death of a shareholder is a particularly complex area for many businesses, so we recommend consulting a solicitor when preparing the shareholders agreement.
There is a chance that the company director and shareholder do not agree on everything. In these situations, it is possible that after a dispute the director wishes to remove the shareholder.
It´s not a simple process to force shareholders to leave a company. They don´t have any obligation to sell their shares, except if the agreement of shareholders or articles of association have been well drafted to include a specific departure procedure.
The first course of action you must take to resolve an issue should be the 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 (Court order that forces an insolvent company into compulsory liquidation) the company. However, this would only be possible 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.
The Register of Members
As the director of the company, it is your responsibility to keep the register of members up to date. This is a statutory requirement which records the names and addresses of your members and guarantors (for companies that are limited by guarantee). The register must include 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.
Notifying Companies House
Companies House needs to be informed when a shareholder leaves or joins the company. This can be done via submitting the annual Confirmation Statement.