A Guide on How to Add and Remove a Company Shareholder

Last Updated: Mar 16, 2021

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Private limited companies by shares should have a minimum of one shareholder when incorporated at Companies House. The number of shareholders a company can have when it is incorporated has no limit – neither is there a restriction to the number of shareholders who can join a company after formation. However, you have to inform Companies House on an annual return whenever a shareholder leaves or joins a company, or when the details of a shareholder change. In addition, it is vital that a company’s register of members is up-to-date and updated whenever any shareholder’s information changes.

Appointing a new company shareholder

It is possible for private limited companies to add new shareholders at any point after incorporation. For this to be done, the existing shares need to be sold or transferred by an existing shareholder to the new shareholder. On the other hand, an organisation could raise its share budget by authorising new shares.

Share transfer

In order to transfer the ownership of an allotted share, a share transfer form needs to be filled with the details below:

• The company’s registered name.
• Number of shares being transferred
• Value and class of shares being transferred
• Name and contact of new shareholders.
• Stamp Duty liability, if any money is paid for the shares.
• Name and contact address of existing shareholder
• Alternate form of non-cash payment or consideration money, if applicable.
• Signature of authorised person.

Issuing new shares

Should a company desire to create more shares instead of transferring existing shares, it needs to raise its share capital by ‘assigning’ new shares. Usually, this happens when a company has to raise extra investment without the need for existing shareholders to sell any of their shares. Conversely, issuing new shares will dilute the proportion of ownership and control held by the existing shareholders.

To assign more shares, form SH01 must be used. The information below will be needed:

• Name of Company
• Company’s Registration Number
• The date(s) of the allotment(s).
• Currency, class and number allotted shares.
• Nominal value of individual share
• Statement of capital reflecting the new allotment.
• Details of any non-cash payments, if appropriate.
• Amount due to be paid or paid per share.
• Details of the allotted shares in a currency apart from pound sterling.
• Signature of the company’s director or any authorised person
• Prescribed details of civil rights affixed to stocks.
  Form SH01 should be posted to Companies House within 30 days of issuance. Details about the new shareholder(s) will be given to Companies House the next time annual return is due. On the other hand, the company can give this information immediately by filing an earlier return, if preferred.

How many shares can a company shareholder take?

Every shareholder should take at least one issued share in a company. There is no wrong or right number of shares to issue in a private limited company. If you are setting up a company on your own, you can issue just one share and own 100% of the business yourself. This implies you are entitled to all excess profits, and you will be required to add your share’s value toward the company’s debts if it cannot pay its bills.

Removing company shareholders

In the event that a shareholder desires to leave a company, his or her shares should be sold or transferred to someone else. The director of the company will be in charge of managing the transfer and updating of shareholder’s details at Companies House as well as in the company’s constitutional register of members.

Companies House should be notified concerning a shareholder leaving a company when the next annual return is filed. In addition, the transfer of shares will be reported simultaneously. A yearly return can be filed online via Your Company Formation’s Company Manager or Companies House Web-Filing Service.

The company’s secretary or director must keep the details of the shareholders updated in the company’s register of members as soon as possible after a shareholder leaves a company.

Updating the details of shareholders at Companies House

The full names and the contact address of the first shareholders are made available on public record, if you wish to keep these off record we recommend a directors service address combined with a registered office address. Any shareholder that becomes part of a company only needs to send their names and share details to the Companies House. Should the name of a shareholder or shareholdings change at any point, Companies House should be informed during yearly return. If a new shareholder joins a company or perhaps an existing shareholder leaves a company, Companies House should be notified during the next yearly return. This document can be filed online via Your Company Formation’s Company Manager or Companies House Web-Filing Service. It is the duty of the company’s secretary or director to make sure Companies House is informed should any of these details change. In addition, they are required to update the company’s statutory register of members accordingly.

What will happen in the event that a company shareholder dies?

Shares in a private limited company can be likened to any other form of property, in that, ownership rights can be passed to anyone who takes over these effects under the will of the deceased. This will typically be a spouse or any member of the family; however it depends on the provisions set out in the articles and shareholders’ agreement of the company.

If there is provision in the articles and shareholders’ agreement, inherited shares can be formally transferred to a recipient by completing a stock transfer form. However in many cases, a company’s articles and shareholders’ agreement have limitations on the transfer of shares to guard the rights of present shareholders as well as the company’s interests.

Whether shares are being transferred in absentia from a deceased shareholder to a recipient or from a recipient to an existing shareholder, a stock transfer form should legally be used to transfer ownership to another.

Should there be any Stamp Duty liability from the sale, a duplicate of the transfer form needs to be filed with HMRC and the new shareholder will have to pay 0.5% of the sale value.

Notifying Companies House

When a shareholder dies, you must inform Companies House when you file your next annual return by providing the date from which he or she ceased to be a shareholder, and the details of the new shareholder(s). The process is the same as when a shareholder leaves a company for any other reason. 

Shareholders’ agreement

A lot of limited companies decide to draw up a shareholders’ agreement. Shareholders’ agreement is a legal document that lists the responsibilities and rights of shareholders, confirms how a company should be managed, controls their relationship with one another and makes clear the way in which decisions can and cannot be made.

The fundamental features and merits of a shareholders’ agreement:

• It provides greater defence for limited company shareholders by allowing more precise provisions than those contained in the standard articles of association.
• Provides an effective framework for resolving disputes between shareholders.
• Arrangements or provisions that apply to individual and current shareholders only can be included. The provisions in the articles are generalised and apply to all present and future shareholders.
• Not like the articles, a shareholders’ agreement is a confidential and private document that is unavailable to the public.
• Provides better protection for the rights and investment value of minority shareholders.
• Demonstrates unity and stability of the shareholders, which is appealing to banks and investors.
• Protects shareholders and their beneficiaries’ interests should a shareholder die.
• Lists dividend policies and distribution of profits.
• State decisions that need a 100% majority vote of the shareholders.

How you can organise a shareholders’ agreement

Normally, a shareholders’ contract must be mentioned and created immediately a business is established. This further lessens the possibility of internal disputes and disagreements in the future; however it is easy to bring in one at a later phase. Regular shareholders’ contract templates can be accessed on the internet, and you can as well produce bespoke contracts with a number of lawful companies on the net; nevertheless, we do suggest you consult a reliable advocate for the best suited and current legal advice.

Last members list

The Last Members List is a shareholder’s list maintained by Companies House. The information on this list is taken from the ‘full list’ of shareholders in a company’s first yearly return. This information should be provided in every third yearly return as long as there are no changes to shareholder details during the two years intervention. Should any changes occur, a company has to tender a full list of shareholders in the next yearly return

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.