We have all seen the adverts depicting dogs, abandoned and
unloved, once the novelty of a cute Christmas puppy has worn off.
Now I'm not suggesting that any one of you would like to
abandon your fellow shareholders in a cardboard box by the canal,
but have you ever thought what might happen to your company if the
fondness for a fellow shareholder wears off?
I recently received an enquiry from a gentleman wanting to
understand the options in relation to shares where a shareholder
had deceased, or simply fallen out with the company. I gave the
advice he requested and he failed to hide the shock in his voice
when he exclaimed "So we would be stuck with him...for
So here they are, the truths you may not want to hear:
If a Shareholder dies:
Assuming that you have no special provisions within your Articles of Association, when a shareholder
dies, their shares will be held in transmission by their personal
representative. This individual will not have the power to vote in
respect of the shares but they will be able to elect to either
become registered as the holder of the shares; or transfer the
shares to another individual, perhaps in line with the Will of the
Whilst the directors of the company will have limited powers in
relation to approval of any transfer, the shareholders do not have
any rights and no one is able to dictate where the shares are
ultimately transferred to.
When a Shareholder is disruptive or
Again, assuming that you have no special provisions within your
Articles of Association, there is really very little that you can
do here. It is possible that one or a number of individuals could
offer to purchase the shares of the problem shareholder, but there
is no guarantee that he or she will agree to sell. The level of
difficulty that this will cause the business depends greatly on the
number of share that the individual holds but nevertheless, no company will function well if all parties are
not working toward the same goal.
What is the answer?
Take the time to think about the 'what if' and ensure
that you put in place the safeguards that you need in the event of
death or disruption. This could take the form of bespoke drafting
within your Articles of Association or, a Shareholder Agreement that has the added
advantage of not being in the public domain – an element that
is important to many shareholders that we work with. Long-term
planning is key.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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