Do you company’s articles contain a hidden danger?

Read on if the following applies to you: 

 Your company was incorporated before 1 October 2009 with ‘Table A’ articles of association (“Table A”)
 You are the sole director and shareholder of your company
 Your company’s articles have never been comprehensively reviewed

Caution: If you were to unexpectedly pass away, your company could be left unable to appoint a new director and continue trading (without the court’s intervention), due to a hidden hazard contained in your company’s articles.

Why so? Well, on a shareholder’s death, the legal title to shares registered in the shareholder’s sole name passes automatically by operation of law to the shareholder’s personal representative(s) (“PR”) under a process called ‘transmission’. PR’s title to the shares cannot be overridden by anything to the contrary in a company’s articles. However, this does not mean that PR automatically becomes a registered shareholder.

Under Table A:

 Regulation 30 states that a PR may choose either to become the holder of the shares or to nominate another person to be the holder.
 Regulation 31 adds that certain of a PR’s crucial rights as a shareholder, including attending and voting at company general meetings do not apply automatically when a PR receives the shares under transmission, but only once a PR is entered on the shareholder register.

So what’s the problem? Well, in summary, despite having the right to be registered as a member of the company with the power to approve the appointment of a new director, PR cannot be registered because … there is no director at that point to enter PR on the shareholder register.

Resolving this issue could turn out to be quite expensive for the shareholder’s successors in terms of time as well as money, as it will require an application to the court for an order to rectify the register of members of the company. Of course, in the meantime, the company has no director to sign off matters of material importance to the company, which in turn could prove fatal to the company’s continued existence.

Rather than your successors having to deal with this scenario, leaving your company ‘frozen’ without the ability to function properly, your company’s articles should be changed now to allow your PRs to appoint a new director(s) when they receive title to your shares under the transmission process.

If you think this scenario may apply to your company, contact our Corporate team without delay on 020 3814 2020. For more information on our range of company secretarial services, including maintenance and rectification of company registers, please contact our Company Secretarial team.