How to remove a shareholder from a Limited Company

Last Updated: Mar 16, 2021
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Shareholders can leave a company at any time for several reasons:  it may be to remove their association from a company, recoup investment or as a result of death. Regardless of the cause, their shares must be transferred through gift or sale to another person, as it is not possible to have shares that aren’t allocated in your company. The new shareholder’s information needs to be recorded in the company’s register of members. Likewise, Companies House needs to be notified during the subsequent yearly return to enable them to upgrade the public register.

Shares ownership Transfer

Limited company shares can be gifted or sold to other individuals by using a stock transfer form ( free open source template download). The company’s director is in charge of filling in this form to officially transfer ownership from one individual to another. Thereafter, a share certificate must be given to the new shareholder, and if necessary, they will need to pay the purchase price to its initial owner.

Shareholder’s death

Should a shareholder die, their share’s ownership may pass under the terms of his or her will to a named recipient. In situations like this, the company’s director will need to implement a stock transfer form to formally handover ownership to the beneficiary. After all, the transfer of shares to an individual who does not have any relevant business know-how, or subscribe to the company’s visions and objectives can result in huge troubles.

Several companies incorporate provisions in a shareholders’ agreement to handle the demise of a shareholder. It is typical for an agreement to say that, upon a shareholder’s death, his or her shares will be passed to a particular person or be made available for purchase by current company members or the company itself.

Forcing a shareholder to leave

Disputes amongst shareholders can result in several challenges. Therefore, endeavour to avoid them as much as you can. It is very difficult to force members to leave the company. After all, they are under no compulsion to sell their shares, except if the agreement of the shareholders or articles is well-drafted to include a particular departure procedure.

The first thing to do to resolve an issue is negotiation. Most shareholders could offer a fair value for the minority’s shares. If they decline to negotiate, then you could take severe measures by winding up the company. However, you can only perform this should the minority have below 25% of the issued shares. You will need a 75% majority of the shareholder’s votes to pass a specific motion to wind up the company.

Updating member’s register

Every limited company needs to keep a member’s register. This item is utilised to record the names and addresses of every member (or guarantor should the company be limited by guarantee), details of the shares they hold, the date they were incorporated as a member of the company and the date they ceased to be a member. Shareholders become members on the date they purchase shares. They stop from being members on the date their shares are transferred to another person.

Informing Companies House

Companies House needs to be informed when a shareholder leaves or joins a company. This is the task of the company’s secretary or director. You need to provide the name and the exit of every new shareholder or date of membership in Part 4 of the subsequent yearly return. If you desire, you can file the yearly return earlier.

Article by

Jody Smith

A content and media expert, I have worked for 7 years alongside start-ups and small businesses to effectively promote their brands through blogs, social media and content marketing strategies.

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