I am representing a 50% Shareholder in a Private Ltd Company who resigned as a Director a few years ago.
The other 50% Shreholder is a sole director, and claims that he can take all her shares for himself on her death, regardless of the terms of her will.
The company is subject to Table a CA1948, and its 4th aricles states '' The shares shall be under the control of the Directors, who may allot and dispose of or grant options over the same to such persons, on such terms, and in such manner, as they think fit''.
If his claim is true, it seems very unfair that the sole surving shareholder can secure all the shares for himself. Has anyone come across a similar situation?
Replies (28)
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No. The surviving director probably has "pre-emption rights" which gives him some control over the identity of his new co-shareholder but the clause you quote doesn't give him the right to confiscate the shares without compensation.
Note that the wording in Table A that you quote does not include any reference to directors being able to confiscate shares for their own benefit. It's all about issuing shares and options over unissued shares.
on a day to day basis is the 50% non director shareholder missing out?
director taking excessive remuneration and benefits for instance
Are dividends declared and paid.
two previous commentators are correct, preemption rights are very much the norm
is the company and its shares worth much...............? normally a wild guess.
If it's a 1948 company, they may still be required to have an audit as that was included in Table A.
Or they may have amended the articles. Or agreed to adopt a later Act's version of Table A, which doesn't include the audit requirement.
Just saying - be alive to the possibility that it might not be the 1948 Table A you're dealing with.
A quick online check of the Companies House record ought to clarify the position.
Then look at the Articles to see if there are, for example, any pre-emption rights.
I agree with John that the Article quoted by the OP relates to unissued shares (not the 50% held by the client).
David
Here's a list of Table A Model Articles over the years:
https://www.gov.uk/guidance/model-articles-of-association-for-limited-co...
As you'll see, searching (control +F) for the word "control" (per your quotation) in any of the 1948 onwards pdfs yields no results, which I guess serves only to confirm that yours are not standard Table A Articles.
Were they non-standard from the outset? Or have they been amended? (In which event, by ordinary or special resolution?). Google beta companies house webcheck and start ferreting.
Does anyone know whether it's still possible to pay a small nominal fee and search the company's physical records at its registered office?
If it’s that important to you, do you not think that it would be wise to seek legal advice on what is a legal matter?
Get paid for legal advice from a solicitor (preferably one who knows what he is talking about with regard to (a) company law and (b) wills & probate).
You have not given us the full Articles, but Articles 29 to 32 in Table A may be relevant.
The Article you quote refers to powers to issue, allot etc new shares - not to transfer the ownership of existing shares.
You have not referred us to anything which suggests that there are any pre-emption rights on a disposal / transfer of existing shares (e.g. on the death of a shareholder).
However you need to be very clear on who held the 1,000 shares while father was alive. Did father, son & daughter each hold one-third of the shares (333 each, so there would be three share certificates, one for father, one for son and one for daughter) or were they joint holders of all 1,000 shares (meaning there would be one share certificate naming all three of them) ?
The point may be crucial as, on the death of a joint holder, ownership (typically) remains in the hands of the survivors (i.e. son & daughter). This has nothing to do with the Articles or with company law, it is standard regarding an asset held jointly by more than one person.
However do get proper legal advice - the position may not be as straightforward as I have suggested!
David
You definitely need our sister site, Soliciting.wb.uk.
This isn't an accountancy problem.
With respect, you may be missing an important point.
If, when father was alive, the 1,000 shares were held jointly by father, son and daughter then what has occurred is likely to be correct.
If the shares were held jointly then Article 4 & father's will are (probably) irrelevant.
So you need to speak to a solicitor & you need to find out if the shares were held in joint names.
One indication might be old company annual returns at Companies House (but there is a risk these may have been completed incorrectly). Worth downloading an annual return from before father's death & seeing how the shareholders are listed on there. It may say "1,000 shares held by father, son & daughter" or it may say "333 shares held by father, 333 shares held by son, 333 shares held by daughter".
David
The fact that we are told that before the father’s death each of three shareholders held 333 1/3 shares suggests that it may well be the case that some or all of them were held in joint names.
As no-one can hold a third of a share, it seems likely that the shares were jointly held.
Suddenly a whole new raft of possibilities opens up.
As David has just said, allot is just a similar word for issuing new shares.
The point that David, John & others have made is
that article 4 of the articles is irrelevant. What is relevant here is the 'Transmission' of shares and David has already referred you to regs 29-32 of 1948 Table A. These are the provisions which will apply (unless the company's articles specifically exclude or modify them)
If the shares were held 334:333:333 then it seems that they were not held jointly.
The point is a legal one. I repeat my earlier advice - get paid for advice from a solicitor who knows what they are talking about.
What would be the point of a non-director owning shares in a company if they could be taken away from him on the whim of the directors? This is nonsense.
There is all sorts of company law regarding the equitable (fair) treatment of minority shareholders.
"Allot shares" means "issue new shares". Basically Article 4 means that the directors can allot new shares and sell or grant options over those new shares to anyone on any terms. Article 4 does not cover the transfer of existing shares (which is an entirely different matter).
David
You need a solicitor who is experienced in these matters. You cannot do it yourself.
I suggest 'Ann' and her two siblings (Barry and Charlie) may want to pool resources, because it does appear that Ann may actually own 416 shares (with James) and Barry and Charlie own 84 shares each.
Notwithstanding what John and David have told you, that nothing within Article 4 itself would allow a director to confiscate shares that were another shareholder's (or his beneficiaries') property, I believe you should home in on Ann's real issues. I'm assuming the company owns no valuable assets, such as property.
Firstly, she's worried because her brother "claims that he can take all her shares for himself on her death, regardless of the terms of her will." That's easily solved by Ann transferring her shares now to a trusted son or nephew or similar - from what you've said the income from them is worth nothing to her anyway. Select a young and healthy son / nephew who is certain to outlive Ann's wicked brother; and get a solicitor to record the transfer by deed or whatever is necessary, and to write to Cos House on Ann's behalf to explain the circumstances, log the share transfer / change the reason(s) for her being a PSC. A stock transfer form, deed, and letter to Companies House shouldn't cost nearly as much as the current open ended mandate.
Secondly, issue the company's accountants with a Subject Access Request for all and every piece of correspondence related to Ann personally within their records and archives. This usually costs around £20 and, being a dreadful nuisance to the accountants, will at least dampen any enthusiasm they might feel towards his cause and force them to deal with the issue. Who knows, there may even be a MLR on the cards if the brother's share acquisition is called to doubt.
Finally, ask the solicitor who closed Ann's late father's estate for sight of evidence that the value of her father's shares was included in the value of his estate. SARs don't cut much ice with solicitors, so it's straight to the Law Society if any leverage is needed. Divide and conquer: solicitors will be quick to cover their own derriere at the expense of supporting their client's contentions.
Ann's brother sounds a cunning chap, and it's my guess that if you should ever succeed with your case that he wrongly interpreted Article 4 and that the shares should be reallocated to the four siblings, then I suspect he'll just Phoenix into a new company with 1 share (his!).
I did think (re: I'msorryIhaven'taclue's final paragraph) that this is the most likely outcome.
If Ann takes no real part in the running of the company, and there isn't much value in the company anyway, all that is likely to happen should any real headway be made unpicking the mess is that he phoenix's oldco into newco in short order, achieving what he wants anyway (the company being his).
You'd then have a claim against him over his directors responsibilities, but that's just another fight to get into (which probably won't lead anywhere except high solicitors fees for all concerned).
Ahh, a kindred spirit. My gratitude knows no bounds, so I shall award the Valiant a "thanks".
So back to you OP. Is there any tangible value in the company worth fighting for? Or is the value of the company largely dependent upon the (wicked) brother's skill and labour?
Well, good and bad news here.
The good news is that the shareholder is entitled to see a profit and loss account.
The bad news is that it won't tell him much.
There are only about five lines on your typical profit and loss account these days.
I think the OP is right - the question is, what is the definition (in context) of a profit and loss account? Does one required under the articles now have to be in accordance with sections 148, 150 and 157 of the 1948 Act?
That's an entirely legal matter and is not one I am competent to advise on, beyond the obvious (already said): the OP [still] needs (paid for) legal advice, if there is anything worth fighting for here.