How to Add and Remove Company Shareholders

Ryan Patrick

• 9 min read
How to Add and Remove Company Shareholders

Shareholders are important members of a limited company. During incorporation, every limited company must provide at least one shareholder before the company can be incorporated by the Companies House.

After incorporation of the company, there may be a need to add shareholders in the company as well as remove shareholders who want to sell out their shares or those that have disobeyed any rules of the organisation and the directors have concluded letting them go and removing them as shareholders of the company.

Whenever a shareholder sells off their shoes or a new member buys shares in the company, there is a legal process that must be carried out by the company. This practice is not for every privately limited company but only for private companies limited by shares. As a company limited by shares, all activities including a slight change in shareholders and their information must be reported to Companies House and must be confirmed in the confirmatory statement of the company.

Companies must also have a statutory record of all shareholders including their names and the amount or percentage of shares they own in the company. Any change in this information must be recorded in the statutory records of the company.

In this article, we will go through the process necessary for adding and removing shareholders in a private limited company.

Adding Company Shareholders

You can appoint new shareholders in your company at any point in time and can appoint as many shareholders as you want since there is no maximum number of shareholders that can be in a company. Companies limited by shares can appoint new shareholders in two ways:

  1. Transfer or sales of existing shares from an existing shareholder to a new member
  2. Increasing the company's share capital by issuing more shares

Transfer of Shares

A company shareholder can transfer their shares to a new member at any time. This share can be sold or transferred by other means. To successfully transfer shares from an existing shareholder to a new one, the following information must be available:

  1. Registered name of the company in full with any form of abbreviations
  2. The value and class of the shares that want to be transferred
  3. Amount or number of shares the shareholder is transferring
  4. Name, address and other relevant information of the present owner of the shares (also known as the transferor)
  5. Name, address, and other relevant information about the new owner of the shares (also known as the transferee)
  6. If the shares are being sold for money, it should be outlined and if it is sold for any form of non-cash payment, it should also be indicated
  7. The stamp duty liability in the case of any exchange of money
  8. Signature of the transferor (current share owner) or any other authorised person available.

In that case, if a transaction involves money for the shares, a copy of the transfer of the shares should be sent to HMRC for stamping. The transferee (new shareholder) will pay for the stamp duty at HMRC. However, if no form of monetary transaction was made during the tender of the shares, there is no need to submit the copy to HMRC and no stamp duty will be paid to HMRC.

If the articles of association of the company include the pre-emption of transfer rights, the current members will need to exercise their rights to first refusal. After that, the directors or members of the company will then approve the transfer of shares and record it in the register of members. However, the article of association must include if the directors or the members of both will participate in the approval of the transfer of shares.

After the transfer of the shares, the new shareholder (transferee) will be given a certificate as proof of obtaining shares. A copy of the stick transfer information will also be given to both the transferor and transferee after a successful share transfer.

The new and old certificates of share ownership should also be kept at the registered office address of the company or the SAIL address of the company for future reference purposes.

After the successful transfer of shares, the company house must be notified of the transfer and this information must be filed in the next confirmation statement of the company to the company house. It is advisable to file a confirmation statement as soon as possible after a successful transfer of shares although that is not mandatory and no sanction is attached as you can wait till the next confirmation statement before filling.

Issuance of New Shares

Sometimes companies create new shares instead of transferring existing shares to new members. This is mostly in cases where no shareholder is willing to transfer their shares and the company wants to appoint New shareholders. To be able to offer shares in your company, you must increase the share capital of your company.

Companies also create new shares in cases where there is a need for funds and the company wants to achieve it without any existing shareholders selling off their shares. However, for a company to issue new shares to new shareholders, this means that the ownership and control of the company is diluted due to the creation of these new shares.

For a company to be able to issue new shares, all existing members of the company will need to waive a pre-emption right in the allotment of the new shares.

The prospective member should send a letter of application to the company and this letter will be addressed by the board of directors (if the members are to participate in this process as stated by the company's articles of association, then the members must be present).

The board of directors will consider the application and then approve or decline it. If it is approved, the information must be recorded on the register of members of the company.

After recording it in the register of members of the company, Companies House Form SH01 which is the Return of Allotment form must be completed and sent to Companies House. The following information is needed to complete the form:

  1. Full name of the company
  2. Company Registered number
  3. The date(s) of share issuance
  4. Class, value and the number of shares that were allotted
  5. The nominal value of each unit of shares
  6. Amount paid or to be paid for every unit of shares
  7. Details of any non-cash consideration of applicable
  8. Statement of capital of the company which must reflect the new shares
  9. Details of any shares issued in any currency apart from pound sterling
  10. Necessary information or particulars of rights attached to the shares
  11. Signature of the director of the company or any other authorised person

Form SH01 must be completed and submitted to Companies House either electronically or on paper within one month of allotment of the shares. The information about the new shareholder should be included in the next confirmation statement of the company to Companies House. The confirmation statement can be sent before it is due and this is advisable.

If the articles of association of the company specified a provision on the authorised shares capital which is the maximum number and value of shares that can be allotted by the company to shareholders, this provision will need to be amended or removed. It is preferable not to include a maximum number of shares that can be allotted in your company's articles of association.

What Are the Number of Shares That Can Be Taken By a Shareholder?

Every shareholder of a company must take a minimum of one share in the company. There is no maximum number of shares that a shareholder can take in a company. However, if you are setting up a company on your own, you can make yourself the sole shareholder and issue only one share to yourself which gives you 100% ownership of the company.

When you own 100% of your company, it means you are entitled to all the profits and losses of the company and you will be required to pay the nominal value of your shares in the case of a debt and the business cannot sort out its bills.

However, if you plan on having a partner in the future, or you are planning to sell off your shares in the future, you should consider creating more than one share even if you will have full ownership. This will help you sell off some of these shares later in the future instead of going through the process of creating new shares.

It is also advisable to issue 10 or 100 shares so the percentage of shares can be easily calculated as well as the percentage of ownership of the company by shareholders. In this way, it will be easier to sell off part of these shares to other people.

You should also note that the amount, number and value of shares issued by a company determines the liability of company shareholders. This is to imply that, if you issue 100 units of shares in your company, you will be liable to pay £100 towards the debts of the company until you decide to sell off some of your shares to new investors.

100 units of shares is not a mandatory figure when issuing shares, if you want to issue a higher quantity of shares then your liability will increase according to the number of shares issued and you will have to pay the nominal value of the shares in the case of insolvency of the company. You should always remember this when deciding on the total number of shares you want to issue when creating your company.

Removing a Shareholder

If any shareholder of a company wants to leave the company, their stock or shares must be transferred or sold to another shareholder or a new member. The directors, however, will be responsible for the regulation of the process of transferring and updating the information of shareholders at Companies House and also in the statutory register of members of the company.

Companies House must be notified when a member chooses to leave the company when the next confirmation statement is due, any transfer of shares must also be reported in the confirmation statement. The confirmation statement can be filed electronically with less stress.

Updating Company Shareholders Information at Companies House

For private companies limited by shares, the details of the first shareholders of the company, also known as subscribers, are always displayed on public records. This also includes the contact addresses of the subscribers of the company.

A subscriber is a person who buys a company share during the time of creation or incorporation. A subscriber usually has more control over the company than other shareholders of the company since they are regarded as the pioneer shareholder(s) of the company.

Other shareholders who join the company after incorporation, only need to provide their name and other relevant details and this information is only available at the register of companies at the company's house or the register of members of the company. There is an exception to this when the shareholder is a person with significant control of the company. In this way, the information of that shareholder will be recorded under the people with significant control of the company.

If a shareholder changes their legal name, it must be reported via the next-due confirmation statement of the company. Also, if any shareholder leaves the company, it must be reported to Companies House as well and it must be updated in the statutory records of the members of the company.

The director and the secretary have the responsibility to report all these changes to the company's house and this must be done to ensure that the company's House has the correct and updated information about the company.

What Happens if a Shareholder Dies?

When a shareholder of a company dies, the shares are still in their name and a legal process must be taken if the shares are to be transferred or sold off to another shareholder or a new shareholder entirely. The directors and shareholders of the company are given the responsibility to sort the shares out and they must work according to the will of the deceased.

If in anycast deceased states that the shares should be transferred to a family member or friend, then the company will see through the process of transferring the shares and if the deceased wants the shares sold off and the funds given to their family members or friend, then the company can sell off the shares to an already existing shareholder or a new shareholder.

The pre-emption rights of the rights of companies are essential and when included in the articles of association of the company or the shareholder's agreement of the company, it gives the other remaining members or shareholders of the company the right to be able to purchase shares from the beneficiary of a deceased shareholder.

Some shareholders are set up. a life insurance policy with the company that gives their fellow shareholder the right to purchase their shares or holdings in the scent of their death.

The pre-emption or life insurance either or both can be implied by the company and the individual shareholder. This gives the other members or shareholders of the company the right to be able to retain control of the stock and the business rather than giving powers attached to the shares to inexperienced beneficiaries of the deceased.

However, when considering the future of the company and the impact of the beneficiary on the company, it is also important to protect the rights and interests of the beneficiary of the deceased who is to inherit the shares of the deceased. If the articles of association of the company provide for pre-emption rights, then the market value of the shares can be paid to the beneficiary.

The provision of pre-emption right can also be declared optional which gives the other shareholders of the company the right to purchase or decline the available stock of the company or the deceased.

Incorporate Your Company with Incorpuk Today

At Incorpuk, we will help you file accurate information when you register your company through us. We will help you with incorporation articles, a registered office address, and all you may need to register your company in the UK. Contact our team if you seek any information; we will gladly assist.

Conclusion

If the deceased is under life insurance, then the company will proceed with the policy of life insurance and allow its members to purchase the available shares of the deceased. The Shareholders Agreement can also allow the beneficiary of the deceased to maintain ownership of the shares of the deceased and receive dividends from the company.

However, the right to vote and contribute to business decision-making might be exempted from their rights in the company. The option of maintaining ownership is very beneficial to both the company and the beneficiary as it allows them to receive dividends in place of the deceased from the company. If you have any questions on how to add and remove company shareholders, don’t hesitate to contact us here, and we’ll do everything we can to help.