22 September 2014

How can I transfer 2 of my company shares to a friend?

I am currently the holder of 10 ordinary shares in my private limited company. I have agreed to transfer 2 of my shares to a friend (John), who is not an employee of the company. However, I want to ensure that he will only be entitled to dividends and I do not want him to have any rights to vote at company meetings. Is it possible to achieve this?  

Depending on the company’s articles of association and any existing shareholders’ agreement in place, it would be possible to reclassify 2 of your shares before you transfer these to John. The purpose of reclassifying the shares would be to vary the rights which the reclassified shares will enjoy, such as removing any voting rights which may otherwise attach to the shares. You may also wish to remove and/or vary other rights which the ordinary shares currently enjoy, such as the right to attend general meetings of the company, the right to dividends and/or the right to a return of capital (in respect of a winding up of the company or otherwise). By removing any voting rights from the new class of share (but keeping dividend rights), this would enable you to retain control of the company whilst still giving John the opportunity to benefit from the company’s profits. In order to reclassify the shares, the company would first need to hold a board meeting to approve the reclassification. The standard position under company law is that a special resolution of the shareholders is required (unless the company’s articles of association provide otherwise), along with the filing of a form SH08 at Companies House. You would also need to consider amending the company’s current articles of association, to reflect the revised share capital and rights for each class of share.

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Alison Scott, Partner
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