Is there a minimum age for a company shareholder?

To complete the company formation process, you must appoint a shareholder, a director, and a person with significant control (PSC). But how old do you have to be to take on these roles in a limited company? Is there a minimum age requirement? And can you transfer shares to your children?

Perhaps you’re a parent looking to plan for your child’s future, include them in the family business, or involve them in a company formation adventure. Or maybe you’re a budding entrepreneur who wants to form a company whilst still at school. Whatever your reasons for asking, let’s take a look at this topic in detail.

Minimum age for a shareholder and other appointments

Whilst one person can simultaneously hold the positions of shareholder, director, PSC, and company secretary, different minimum age requirements apply.

Shareholder

There is no statutory provision that prohibits a minor (under the age of 18) from owning shares in a UK company. As such, there is no minimum age for a limited company shareholder in the UK, unless the company’s articles impose an age restriction on members.

Whilst less common in small private companies, public companies (PLCs) often exclude minors from being shareholders. In such instances, parents or grandparents may hold shares on their behalf, either as trustees/nominees or by using some form of investment trust.

Director

By law, an individual must be at least 16 years old to be a director of a UK limited company. Given that the age of majority in the UK is 18 years, this means that you can appoint a child aged 16 or 17 years as a company director.

People with significant control (PSC)

Just like shareholders, there is no statutory minimum age requirement for people with significant control. Many shareholders are also PSCs by virtue of their shareholdings. Therefore, it makes sense in this respect that neither position imposes an age restriction.

That being said, people with significant control (as the name suggests) hold a great deal of control and decision-making power. Considering that most minors lack the requisite knowledge and experience to make important business decisions, problems may arise in relation to this role.

It is often the case that PSCs need to enter into contracts on behalf of the company. However, the legal assumption is that minors do not have the legal capacity to do so. Therefore, such contracts of a business nature are voidable by (and unenforceable against) minors. This could be problematic in certain situations.

Company secretary (optional appointment)

You must be at least 16 years old to be a company secretary in the UK. Secretaries, like directors, are officers of a company and are responsible for statutory administration and management of the business.

Implications of different minimum age requirements

These contrasting age requirements mean that a minor can own a company (as a shareholder) and hold ultimate control over a company (as a PSC), but they cannot be tasked with the day-to-day running of the business (as a director or secretary).

• Directors, shareholders, PSCs, and company secretaries – an overview
• Does a director have to be a shareholder?

This may seem counterintuitive at first – and there are a number of potential downsides to be aware of. However, allowing children to be shareholders can be of financial benefit to both minors and their parents, if managed properly.

We consider these advantages and disadvantages below to help you decide whether issuing or transferring shares to your child is the right decision.

Advantages of appointing a child as a shareholder

If you run a limited company, there is nothing to prevent you from giving shares to your children, unless prohibited by the company’s articles of association. However, in such instances, it is possible to alter the articles accordingly by passing a special resolution of the members.

Many family-owned companies issue or transfer shares to children to provide them with dividend income or capital assets. Doing so can offer significant tax benefits and may enable you to:

• Introduce your child to the world of investing, educate them about financial markets, and teach them how to manage money
• Finance their education and provide them with a stream of income
• Utilise their annual tax-free Personal Allowance (£12,570 for 2024-25 tax year) and dividend allowance (£500) to lower your household’s tax burden. However, this only applies if your child is at least 18 years old when dividends are paid
• Plan ahead to provide your child with a tax-free source of dividend income when they turn 18
• Gift shares on a piecemeal basis over a number of different tax years to make use of your annual Capital Gains Tax allowance (£3,000 for the 2024-25 tax year). This can also be useful if you plan to pass on your company to your child in the future
• Minimise Inheritance Tax liability on your estate – by transferring shares up to a value of £3,000 (annual gifting exemption) per year, the transfers will be exempt from Inheritance Tax. Shares above that value may be liable to 40% Inheritance Tax if you pass away within 7 years of the date of the transfer
• Provide your child with shares that will increase in value over time

Consider issuing different types of shares to minors

A common strategy when giving shares to minors is to issue non-voting shares. This addresses the issue of the child’s lack of legal capacity to make binding business decisions. Moreover, it can protect the company from the parents of a minor shareholder having undue influence over the business.

You can also create classes of shares that provide different rates of dividends. This would give you greater flexibility over the distribution of dividends to your child.

Disadvantages of appointing a child as a shareholder

Despite the potential benefits, there are critical factors to consider before issuing or transferring shares to your offspring. Most notable are the various tax implications.

Parental settlements

Parental settlement rules apply when a parent (the ‘settler’) diverts income to their minor children (including step-children) as a way to reduce their own tax liability.

This anti-avoidance legislation means that any gross income (above £100 per year) that your child receives from shares gifted by you will be taxed as if it’s your own income. The £100 annual limit is per parent, per child.

Parental settlement legislation makes tax-efficient planning for your minor child’s education and support somewhat challenging. However, once your child reaches the age of 18, these rules no longer apply.

Any dividend income that your adult child receives from the shares will be treated as their own for tax purposes. If it is their only source of income, they can receive up to £13,070/year tax-free. This figure is comprised of their £12,570 Personal Allowance and £500 dividend allowance.

What about shares gifted from grandparents?

If implemented properly, parental settlement rules do not apply where a grandparent gifts shares to a grandchild under 18.

However, if any underhand arrangements take place – i.e. the shares are transferred from the parent to the grandparent to give to the child – any dividend income distributed to the child will be caught by the settlement provisions. In such instances, the income will be treated as that of the parent.

Capital Gains Tax (CGT)

Capital Gains Tax is another important factor when gifting shares to your child. Any shares that you pass on to your offspring (regardless of age) will be classed as a disposal for CGT purposes.

To minimise your tax liability, you should keep within your annual Capital Gains Tax allowance of £3,000. If you intend to transfer a higher value of shares, you could split the total share transfer across a number of tax years. This would allow you to make use of multiple annual allowances.

To determine the capital gain, calculate the difference between the original value of the shares and their market value at the time of transfer to your child. You will be liable to CGT on any deemed gain from the shares above your annual allowance.

Directors’ power to refuse a share transfer

In many companies, the articles of association give directors the power to refuse to register a share transfer. This provision is included in the model articles for private companies limited by shares.

Therefore, even if the articles impose no minimum age requirement for shareholders, the board of directors may not agree to accept a transfer of shares to a child.

Accordingly, you should consult the directors prior to making any such arrangements to gift shares to your child.

Impact on other shareholders or employees

An often-overlooked consequence of giving shares to children is the impact it can have on other shareholders and employees.

Transferring shares to your child may be met with disapproval or concern from existing shareholders. This could create unnecessary tensions and disagreements.

If there is a shareholders’ agreement in place, it may include restrictions on share transfers, such as pre-emption rights. Another common restriction is that no shares can be transferred without the consent of all members.

• Rules and restrictions on share transfers in a private limited company
• Do shareholders need to pay for their shares?
• A guide to company shares

You may also find it more challenging to attract new investors if your company has minor shareholders, especially if the value of the child’s shareholding is significant.

When it comes to employees, giving shares to a minor could demotivate key or senior members of staff. For those who have contributed a great deal to the success of the business, it could be a real blow to see minors receiving shares for no effort – especially if the employees themselves do not have shareholdings in the company.

Capacity to enter into contracts

In the UK, any contract made with a child is generally voidable by and unenforceable against, the minor. This means that a child can cancel a contract at any time before they turn 18, and for a reasonable amount of time thereafter. They don’t have to provide a reason.

However, there are some exceptions. Namely, beneficial contracts for services, apprenticeships, education, or ‘necessaries’ such as food, clothing, accommodation, and medicine.

In the context of giving shares to a minor, this position could give rise to risk and uncertainty. Shares are not necessaries, so any contractual obligation of the child arising from the shareholdings is unlikely to be binding.

Consequently, the child could relinquish such obligations in relation to owning shares. This includes paying for their shares and abiding by the terms of any shareholders’ agreement that may be in place.

Some banks and other service providers require the consent of all shareholders to enter into a contract. Thus, a company with a child shareholder may face difficulties accessing such services, like opening a business bank account or acquiring a loan.

Other considerations when giving shares to a minor

Families can be complicated, especially in business, so think carefully before giving shares to your children. It is a big decision because they will essentially control part of the company.

If you transfer a large percentage of shareholdings to your child, what happens if they disagree with a proposal and outvote you on a resolution? Or you decide that you want to reclaim greater control of the business but they refuse to give back their shares?

If you have more than one child, disagreements and rivalry may also come into play. Particularly if an older sibling receives shares before the younger one. This might sound far-fetched, but children do not always have the maturity to handle such situations.

Possible alternatives

Before giving shares to a minor, consider taking professional advice on the best option for you and your child. Creating a new class of share without voting rights may be more appropriate than transferring existing shares with voting rights.

Alternatively, you could act as a nominee shareholder on trust on behalf of your child. This would address the potential risks and obstacles associated with a minor’s lack of capacity to contract. It may also help to alleviate the concerns of other shareholders and future investors.

Under this type of arrangement, your child would retain the underlying (beneficial) interest in the shares, but the company would register you as the legal owner of the shares in a nominee capacity.

As a nominee, you would exercise voting rights, receive dividend payments, and sign contracts on behalf of your child. Once they reach the age of majority, they can take possession of the shares.

Wrapping up

So, there you have it! There is no minimum age for a shareholder unless imposed by a provision in the company’s articles of association. Likewise for people with significant control. But you cannot appoint a minor under the age of 16 as a director or company secretary.

There are many potential benefits to transferring shares to your child, including tax planning and teaching them about investments. Nevertheless, there are also pitfalls to be aware of, such as parental settlement rules, Capital Gains Tax, Inheritance Tax, and the capacity to contract.

It’s a complex situation that requires a lot of thought and careful planning. As such, we recommend seeking professional advice from an accountant before gifting shares to your child.

If you have any questions about shares, shareholders, or limited companies in general, please contact our company formation team or leave a comment below.