Is there a Minimum Age for a Company Shareholder? (All you need to know)

To complete a company incorporation process, the business must have a director, a shareholder, and a person with significant control. However, Is there a minimum age for a company shareholder? No statutory provision restricts shares to be held by a child under 18 years in companies registered under the Companies Act 2006.

Therefore, companies can accept minors as long as their articles of association permit it.

The situation is complicated because minors lack legal capacity, meaning that any contract they engage in (aside from those deemed 'necessary') can be avoided by them while they are still under the age of 18.

Are you a parent planning for your minor's future by including them in the family-owned company or the company incorporation process? Could you be nurturing a young entrepreneur who wants to register a business while still in school? This blog will guide you through the topic and help you make informed decisions.

What's the Minimum Age of a Shareholder, a Director, or a PSC?

Shareholder

As mentioned, no statutory provision prohibits a child under 18 from owning business shares in the UK. Therefore, there is no specific age requirement for an individual to be a shareholder in a limited company in the UK, unless the company's articles of association establish an age limit for members.

Although it's less frequent in public companies, small private companies often prohibit minors from owning shares. Their parents or grandparents might hold shares on their behalf as nominees or trustees or by using an investment trust structure.

Director

The law mandates an individual of a minimum of 16 years can be a director in a limited company in the UK. So a minor of 16 or 17 years can be a company director.

People with significant control (PSC)

There's no minimum age bracket in the UK for PSCs, just like for shareholders. Given that many shareholders also qualify as Persons with Significant Control (PSCs) due to their shareholdings, it logically follows that neither role imposes an age limit.

The PSC holds essential control and decision-making power in a company. Minors may lack experience and knowledge, which may cause problems concerning the PSC role.

In most cases, the PSC must enter into contracts on the company's behalf since minors cannot engage in such agreements. Consequently, contracts of a company nature entered into by minors are subject to being voided by them, rendering them unenforceable. This could pose challenges in specific circumstances.

Consequences of Different Minimum Age Criteria

This divergent age requirement implies a minor can hold shares in a company and exert significant control as a PSC. Still, they cannot assume operational responsibilities as directors or secretaries in a company's day-to-day management.

This may appear contrary to common sense, and several drawbacks exist. When handled appropriately, enabling children to hold shares can yield financial advantages for minors and their parents.

Advantages of Designating a Child as a Shareholder

If you own a limited company, nothing stops you from appointing your children as shareholders unless your company articles prohibit it. However, you can alter the articles by passing a resolution to the members.

Family-owned businesses transfer or issue shares to children to provide them with capital assets or dividend income.

Having your child as a shareholder holds significant tax benefits, enabling you to:

1. Introduce your child to an investment environment while providing education on financial markets and impart knowledge on money management
2. Provide them with a continuous income and fund their education
3. Use your child's tax-free personal allowance of £12,570 for the 2024-25 tax year and £500 dividend allowance to cut your tax burden. This only applies when your child is 18 and above when paying the dividends.
4. Minimise your estates' inheritance tax liability when you transfer shares worth £3,000 yearly; this transfer will be inheritance tax-free. On the other hand, shares above this value can be liable for an inheritance tax of up to 40% if you die seven years after the date of transfer.
5. Give your child tax-free dividend income when they reach 18
6. Provide your child with shares that will appreciate over the years
7. Gradually transfer shares over multiple tax years to use your annual Capital Gains Tax allowance of £3,000 for 2024-25. This strategy can also be advantageous if you intend to transfer ownership of your company to your child later on.

Which Type of Shares can I Issue a Minor?

The best shares to issue a child are non-voting shares. This solves the minor's lack of legal capacity to make company-binding decisions. This also protects the business from the parents of a minor shareholder to exert excessive influence over the company.

You may also create share classes that provide different dividend rates. They would offer greater flexibility over dividend distribution to your child.

Disadvantages of designating a child as a shareholder

Although issuing a child shares comes with benefits, it also has drawbacks. The most significant is the numerous tax implications.

1. Parental Settlements

Parental settlement regulations come into play when a parent, referred to as the settler, redirects income to their minor children, including step-children, to lower their tax obligations.

This anti-avoidance rule implies that any gross income over £100 your child receives annually from the shares you transferred to them will be taxed similarly to your income tax. The annual limit of £100 applies individually for each parent and each child.

The parental settlement legislation makes your minor's efficient planning for your child's education and support challenging. But when your child turns 18, the rules no longer apply.

Any dividend income your over18 child receives from their shares is treated as their own during taxation. If the income is their sole earnings, they can receive up to £13,070 annually without incurring taxes. This includes the £12,570 Personal Allowance and a £500 dividend allowance.

2. Shares Gifted from Grandparents

Parental rules settlements don't apply if the grandparents gift their under-18 grandchild shares. However, if underhand arrangements occur, such as transferring shares from the parent to the grandparent to pass them on to the child, any dividend income the child receives will be subject to the settlement provisions. In such a scenario, the income will be attributed to their parents.

3. Directors can Refuse the Share Transfer

Although the company articles may not exclude minors from owning shares, they give directors discretionary power to prevent the transfer of shares for any reason. These provisions are incorporated into the existing model articles of association for private companies limited by shares.

4. Capital Gains Tax (CGT)

Capital gains tax is a crucial factor when gifting shares to your minor. Regardless of age, sharing shares with your children will be considered selling them for CGT purposes.

To minimise the tax liability, ensure your annual CGT allowance doesn't exceed £3,000. If you plan to transfer higher-value shares, you may split the share transfer across several tax years. This will help you make use of numerous annual allowances.

To know the capital gain, you should deduct the difference between the shares' original and market values during the transfer to your minor. You'll need to pay Capital Gains Tax on any profit from the shares that exceed your annual allowance.

Challenges to Consider Before Transferring Shares to a Child

1. A child limitation to enter contracts

Under English law, a contract made by a child is unenforceable against them unless it falls within specific exceptions like contracts for apprenticeships, education, or necessities like lodging and food.

When it comes to buying or selling shares, this creates uncertainty because shares aren't considered essential. So, a minor can cancel any share-related contract until they turn 18.

Once they're 18, they can decide to make the contract valid.

2. You lose part of the control of your company

Transferring a portion of your shares to your child means you will lose a percentage of control in the company. Although it looks like a good idea now, your child may decide not to be part of the business in the future.

Unfortunately, they can block your proposed resolutions or wrestle your business to control.

3. A Minor can repudiate their membership

When a minor becomes a company member by holding shares, they can cancel or reject a contract for the shares before they turn 18. This rejection is called repudiation.

Before they reject the contract, the child has all the rights and duties of being a shareholder. But if they choose to reject it, they won't have any future responsibilities for those shares.

If the child got the shares from someone else, not directly from the company, and then rejects them, the original owner might have to take back the shares and be responsible for any unpaid amounts on them, even if they didn't know the child was underage.

Possible Alternatives

Considering the potential challenges related to transferring shares to children and their ability to enter contracts or disclaim them, an alternative approach to granting a minor interest in shares involves an adult (such as the child's parent) being registered as the legal owner of the shares.

This adult acts as a nominee shareholder, holding the shares in trust for the minor.

Although the minor holds the beneficial interest in the shares in this setup, the company registers the adult as the shareholder. As a result:

1. Exercise the shares voting rights
2. Be responsible for signing contacts or any transfer attached to the shares
3. Receive dividend payments on the minor's behalf

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.

Final Thought

As mentioned above, there's no minimum age for one to be a shareholder in a company in the UK unless there's a provision in the company's articles.

Transferring shares to your minor has numerous advantages, such as nurturing them on investments and tax planning. However, there are also drawbacks to which you must take caution, such as CGT, parental settlement rules, capacity to contract, and inheritance tax.

Transferring shares to a child can be challenging, and you should think it through carefully or seek professional advice. If you have any questions about the Minimum age for a company shareholder, don’t hesitate to contact us here, and we’ll do everything we can to help.