Adding and removing company shareholders

In a company limited by shares, adding and removing company shareholders (members) may arise following an allotment or transfer of shares after incorporation. Any such changes must be reported to Companies House on the next annual confirmation statement.

Directors must update the company’s statutory register of members when shareholder information changes, ensuring that it is always accurate and up-to-date. In certain situations, the register of people with significant control (PSC register) must also be updated.

How to add new company shareholders

Companies can add new shareholders at any point after incorporation. The easiest way is for existing shareholders to transfer (sell or give away) some or all of their shares to new members. Alternatively, the company can increase its share capital by allotting (issuing) new shares.

Transferring shares

To transfer company shares, a stock transfer form (form J30) must be completed with the following details:

• Company name
• Class and value of the transferred shares (e.g. Ordinary shares of £1)
• Number of shares being transferred
• Name and contact address of the current shareholder (transferor)
• Name and contact of the new member (transferee)
• Consideration money or alternate form of non-cash payment, if applicable
• Stamp Duty liability, if any money is exchanged
• Signature of the transferor or authorised person

If money is paid for the transferred shares, a copy of the stock transfer form should be sent to HMRC to be stamped. The new shareholder must 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 include pre-emption rights on the transfer of shares, the existing members must waive their first refusal right. After that, the directors (or members, if required by the articles) can approve the transfer and update the register of members.

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New company shareholders should receive a share certificate as proof of purchase. The transferor and transferee should also receive a copy of the stock transfer form. The company must retain copies of the new and old certificates and the stock transfer form.

Notifying Companies House of the share transfer is not necessary until the next annual confirmation statement is due. However, filing a confirmation statement early is advisable. This ensures that the information shown on the Companies House register remains current.

Issuing new shares

Rather than transferring existing shares, companies can add new shareholders by issuing new shares. To do so, you must increase the company’s share capital. This procedure is known as an allotment of shares.

Creating new shares allows a company to add new members or raise additional funds without requiring existing shareholders to sell any of their shares. However, doing so will dilute the existing shareholders’ percentages of ownership and control in the company.

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If the articles provide pre-emption rights on the allotment of shares, the existing members must first waive these rights. The prospective members should deliver a letter of application to the company, and the directors (or members, if required by the articles) must approve the allotment and update the register of members.

Within one month of issuing new shares, the directors must complete Companies House Form SH01 with the following information:

• Company name
• Company registration number
• Date(s) of the allotment(s)
• Class, currency, and number of new shares
• Nominal value of each unit
• Amount paid, or due to be paid, per share
• Details of any non-cash considerations (payments), if appropriate
• A statement of capital reflecting the new allotment
• Details of any shares allotted in a currency other than pound sterling
• Prescribed particulars of rights attached to shares
• Signature of a director or other authorised person

Companies House should receive information about the new member(s) when the next confirmation statement is due. Alternatively, the directors can file an early confirmation statement.

Suppose the company’s articles of association include a provision on authorised share capital (a maximum number and value of shares that the company can issue) and the allotment will take the company above that limit. In that case, the members must amend or remove the provision in the company’s articles beforehand.

How many shares can company shareholders take?

Company shareholders must take a minimum of one share each. 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. This share will represent 100% of the business. As such, you will be entitled to all profits and required to contribute the nominal value of your share(s) toward debts if the company 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 set up your company. This will enable you to sell some of them in the future rather than having to create new shares.

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It is often a good idea to issue 10 or 100 shares because it is easy to calculate the percentage of ownership represented by each share. You can also sell smaller portions of the company to more people.

However, be aware that the number and value of issued shares determine the liability of company shareholders. For example, if you issue 100 units with a nominal value of £10 per share, you will be liable to pay £1,000 toward company debts (if required) until you sell some of your stock to new investors.

While this is not a tremendous figure, your liability will increase accordingly if you issue a greater quantity and/or value of shares. Consequently, you will be liable for the total nominal value if the company becomes insolvent.

Removing company shareholders

Any member wishing to leave a company must transfer their shares to someone else. The directors are responsible for overseeing the transfer, updating the company’s statutory register of members, and notifying Companies House.

Directors must tell Companies House about the transfer and the shareholder’s departure when the next confirmation statement is due. Alternatively, they can file a statement early. You can file a confirmation statement online through Companies House WebFiling or 1st Formations’ Online Company Manager.

Updating company shareholders’ details at Companies House

The full names and contact addresses of the first company shareholders (the ‘subscribers’) are publicly available on the Companies House register. However, members who join after company formation only need to provide their name – unless they are also a person with significant control.

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If company shareholders’ names or shareholdings change at any point, or members join or leave the firm, the directors must notify Companies House on the next confirmation statement.

The director is legally responsible for keeping this information current at Companies House and maintaining the company’s statutory register of members and PSC register accordingly. However, these duties are often delegated to a company secretary. Failure to comply can result in financial penalties, prosecution and director disqualification.

What happens if a company shareholder dies?

When a company shareholder dies, their shares form part of their estate like other forms of property. The executors of the estate, who are confirmed by a grant of probate, hold the authority to deal with the shares and enact that person’s will.

Protecting the company and its members

Pre-emption rights are often included in the articles of association and a shareholders’ agreement. These rights allow surviving members to purchase shares from a deceased member’s beneficiary. Some company shareholders set up life assurance policies to enable their fellow members to purchase their holdings in the event of their death.

By doing so, surviving company shareholders can retain control of the business and uphold the status quo. This prevents control of the company from passing to an inexperienced beneficiary who may not possess the necessary skills to make critical decisions about strategy and operational activities.

Protecting the beneficiaries of company 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 any 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 company shareholders to purchase or decline the available stock.

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If a life assurance plan is implemented, the policy proceeds will enable the remaining members to purchase available shares. Alternatively, the articles and shareholders’ agreement may allow beneficiaries to maintain ownership of the stock and receive dividend payments while removing their right to vote on business decisions.

This option is often mutually advantageous for the business, its surviving owners, and the beneficiary of the deceased member.

Transferring ownership of shares

Whether shares are being transferred in absentia from a deceased person to their beneficiary or from a beneficiary to surviving shareholders, 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 sent to HMRC. The new owner must also pay 0.5% of the sale value to HMRC.

Notifying Companies House

When a shareholder dies, you must inform Companies House on the next confirmation statement.

Following the share transfer to the new beneficiary, you should state the date on which the deceased person ceased being a member and the details of the person who now owns their shares.

The latter stages of the process are the same as when a member leaves the company for any other reason.

What is a shareholders’ agreement?

Many companies choose to draw up a private shareholders’ agreement. This legal document outlines shareholders’ rights and responsibilities, regulates their relationship with one another, confirms how the company should be managed and clarifies how 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 several problems for surviving members and the company.

An agreement usually includes provisions for pre-emption rights. This clause requires available shares to be offered to existing company shareholders before anyone else. If no such rights exist, shares could be offered to anyone, including those lacking the skills to support the company’s vision and objectives.

If this were to happen, it could negatively impact the decision-making powers of existing company shareholders and the business’s overall success.

Benefits of a shareholders’ agreement

The key features and advantages of a shareholders’ agreement include:

• Providing greater protection to company shareholders by allowing more specific provisions than those contained in the standard articles of association.
• Option to include provisions or arrangements that apply to individual and current shareholders only. The provisions in the articles are more general and apply to all current and future members.
• Providing an effective framework for resolving disputes between members.
• Unlike the articles, this type of agreement is private and confidential. It does not appear on the Companies House public register.
• Demonstrating unity and stability, which is appealing to banks and investors.
• Protecting the interests of company shareholders and their beneficiaries in the event of death.
• Protecting the rights and investment value of minority shareholders.
• Outlining dividend policies and the distribution of profits.
• Specifying decisions that require unanimous agreement from all members.
• Clarifying the particulars of pre-emption rights.
• Outlining the terms and manner of each member’s investment agreement.
• Increasing or restricting the powers of company directors.
• Setting out the terms of directors’ remuneration.
• Providing for the regulation and restriction of share allotments or transfers.
• Outlining the terms of selling or closing the company.

How to arrange a shareholders’ agreement

Ordinarily, the founding members should discuss and create a shareholders’ agreement before or immediately after company formation. This reduces the potential for disagreements and internal conflicts further down the line. However, you can introduce one later or make amendments to an existing agreement anytime.

Standard shareholders’ agreement templates are available online. You can also create a bespoke agreement online with various legal companies. However, we recommend consulting a reputable solicitor for the most appropriate and up-to-date legal advice.

What is the Last Members List?

The Last Members List is the most recent listing of shareholders or guarantors that a company has provided 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 complete list of company shareholders unless any details have changed. This information is now provided on the PSC register and submitted to Companies House on the confirmation statement.