Adding and removing shareholders from a company can be a complex process. There are a few key things that one should keep in mind when adding or removing shareholders, such as the type of entity your company is, the state in which your company is incorporated, and any restrictions on ownership in your company’s articles of incorporation.
With all of these factors in line, it is also important to seek the help of an experienced business solicitor before making any changes to your shareholders.
Adding a new shareholder to the company
Adding shareholders is a common process that private companies undertake. This involves transferring or auctioning shares to new owners, who then get certain voting rights in the company’s operations.
Any information related to the addition of shareholders or to change name of limited company should always be reported to the Companies House.
Transfer of shares
Generally, shares are transferred to a new person and can be in the form of a gift or sale. For this, a deed is included, which is a legal document that governs the agreements between new and existing shareholders and contains specific information about it.
This document contains the details of the transferors, transferee, and the company, along with the following:
- The number of shares.
- Value and type of shares.
- Stamp duty liability in case of purchase of shares.
- Type of assets through which the shares have been purchased (if any)
- Signatures of authorised personals.
Transferring shares as a director
If one plans to transfer shares as a company director, this should be done formally. Before beginning the process, one needs to confirm the current value and the number of shares meant to be transferred along with the final structure of stockholdings.
Along with this, the new owner’s details should be verified. The board must approve the share transfer with an allowance for review. Once the confirmation statements are issued, the transfer of shares is complete.
In case pre-emption rights are issued, the existing members have to waive their right to the first refusal, after which the directors can approve and record the transfer.
Issuing new shares in a company
The process of introducing new shares require an increase in the company’s share capital. This is usually done to raise funds without splitting pre-existing shares, which only dilutes shareholder’s percentages without selling.
Form SH01′ Return of allotment’ is a Companies House form that needs to be filled and reported in case of an issue.
Removing a company shareholder
The directors are responsible for overlooking the process and updating the information at remove shareholder Companies House. The share transfers should take place simultaneously, and confirmation statements can be applied. These updates should also be confirmed within the statutory register of members.
Make a majority decision
During this process, one needs a majority of votes in order to remove a shareholder. Once the removal is decided based on the majority of the votes, a claim is set. If this fails, then negotiation is another method to choose and decide a fair value of their shares.
After reaching an agreement, the company can purchase the stocks and has to ensure that none of these is unfilled.
Prepare a non-compete agreement
This non-compete agreement is necessary in order to ensure that the leaving shareholder does not enter another competing company. This might be valid for a specific time to ensure the client’s safety and privilege.
Updating in case of removal
If any shareholder is removed, their stock/share must be sold or transferred to another entity. The details of the company shareholder are disclosed on public records, after which only the person’s name and shares details are needed. This is done unless they have noteworthy control.
Drawing the last line
As a shareholder or owner of your company, it is important to know when and how you can add or remove shareholders. The process of adding and removing shareholders can be complicated, so we have outlined the key steps and considerations above.
If you are thinking or already in the process of adding or removing a shareholder, please consult an experienced corporate attorney who can help guide you through the process. Mishoura can help you find the best lawyer for your situation.
Written By Omar Shams