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Can a company refuse to register a transmission of shares?

Can a company refuse to register a transmission...

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This is probably a question for a solicitor, but I wondered if anybody here had come across a similar situation.

A 19% shareholder in a private company (registered under the 1908 Act) died and there is now a trust to administer the estate. The company's Articles state that "the executors or administrators of a deceased holder of a share shall be the only persons recognised by the company as having any title to the share." The following Article states that "any person becoming entitled to shares in consequence of the death of any member may, with the consent of the directors (which they shall be under no obligation to give), be registered as a member in respect of such shares or may, subject to the regulations as to transfers, transfer such shares."

Relying on this Article, the directors of the company are now saying that the trust administering the estate of the deceased member, while shown on the Annual Return as holding the shares (which are shown thereon as all having equal rights), has not been admitted to membership of the company and so is not entitled to attend or vote at company meetings. In a letter to the trust, the company states that the executors have the right to deal with the shares and are entitled to receive dividends, but are not registered as members in their own right.

Does this sound right? Or does the second Article quoted above refer to beneficiaries under the trust, rather than the trust itself?

As the company is now pursuing a course of action that is potentially prejudicial to the trust's interests, any views would be gratefully received.

Replies (6)

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Stepurhan
By stepurhan
23rd Sep 2015 10:26

Gut feeling

As you say more of a legal question.

But my gut feeling is that the executors either have all the rights attached to the shares or none of them. The directors should not be able to pick and choose which rights are applied, which they appear to be doing if they say they can receive dividends but can't vote.

Thanks (1)
paddle steamer
By DJKL
23rd Sep 2015 12:19

I am no solicitor but

"The company's Articles state that

1."the executors or administrators of a deceased holder of a share shall be the only persons recognised by the company as having any title to the share." 

The following Article states that 

2."any person becoming entitled to shares in consequence of the death of any member may, with the consent of the directors (which they shall be under no obligation to give), be registered as a member in respect of such shares or may, subject to the regulations as to transfers, transfer such shares."

Is 2  not  firstly describing the position where a will leaves shares expressly to a party and the directors have discretion prior to the executors executing transfer to the party to benefit. If the executors are recognised as having title by 1 then surely they are thereafter governed by "the regulations as to transfers" which I presume are a further section apart

In addition the wording in 2 recognises the consent of the directors (which they shall be under no obligation to give) ; is this only in respect of the first part of 2 (I think it may be) and not to the second part of 2 re transfers?. If it was to apply to both it possibly ought, to make that clear, be inserted either before both or after both but not inserted in the middle.

Accordingly per 1 the executors have title, and per the transfer provisions have right to transfer, the key therefore is what the transfer provisions say?

But as I say I am no solicitor and was probably the weakest student ever to scrape through the business law course at Aberdeen (law for non lawyers, so to speak)

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By TerryD
23rd Sep 2015 11:37

Thanks to you both.

DJKL's opinion seems logical to me: the directors are empowered to refuse to accept as a member any named beneficiary under the will and, under the normal transfer rules, can refuse to register any proposed transfer by the trust. In such a situation I would have thought that the company would then have to make a realistic offer to purchase the shares from the trust (a situation not, of course, envisaged by the 1908 Articles).

But I agree with Stepurhan that it seems illogical that this should mean that the trust itself does not have full membership rights.

Can there be such a thing as this "partial" membership?

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By pawncob
23rd Sep 2015 16:03

Things have moved on since 1908. Especially since the 1925 Act, which probably blows their stance out of the water. (mixed metaphor!). Though the directors can still reserve the right not to register members.

If it's that important to you, I suggest you obtain legal opinion.

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By TerryD
23rd Sep 2015 17:10

I've just looked at the current model Articles, and Article 27 states that transmittees do not have the right to attend or vote at a general meeting. So the concept does exist, although these 1908 Articles don't mention any such prohibition on voting. But if the directors refuse to allow a transfer and refuse to register the trust as a member, which they appear entitled to do, what is the status of these shares? They appear to be stuck in limbo.

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By jndavs
24th Sep 2015 08:52

Limbo
The equitable owners are the beneficiaries, with the executors acting on their behalf. Under CA 2006, if the directors are refusing to register anyone as shareholders, they must give a reason. The executors can then ask for a court order.

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