• Startups
  • August 13, 2021

Getting Shareholder Management Right

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By Lawbite Team

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Shareholder management may be an aspect of business that many business owners and directors do not prioritise, but it is crucial. 

Shareholders own the business, and although directors oversee the day-to-day decision making within the company, ultimately the shareholders make decisions about company strategy, financing and management. Shareholders have a vested interest in how the company is run and have the right to vote on certain matters within the company, and to be elected to a seat on the board of directors

That is why shareholder management is so important, not only manage affairs with shareholders but also ensure you are properly keeping track of all shares held within the company.

What is a Shareholder?

A shareholder is an individual or institution that legally owns one or more shares of the share capital of a public or private corporation. Owning stock in the company means that a shareholder is a part-owner of the business, and therefore will be rewarded for their shares if the company does well (also lose money if the business performs badly). Shareholders may also be referred to as members of a corporation.

An individual can become a shareholder by agreeing to take one or more shares of a company’s stock - known as equity - and therefore effectively owning part of a business. Stocks for a public company can be bought from a number of different places: brokerage firms, banks and there are even on-line and app services you can use today. Shareholders can also invest in a private corporation by contacting the company directly and stating a desire to invest. 

Shareholders can affect the business through their right to vote on company decisions. Their voting power increases the more shares they have in a company. They can also vote on the board of directors of a company. The board of directors, which represents the shareholders, has duties within and influence on the businesses. These duties include selecting managers within the business, assuring the company is well-financed, and providing guidance on policy and strategy of the company. 

A director can be a shareholder, but they have different roles within the company.

There are two types of shareholders in a company. These are: common shareholders, who hold the common stock in a company and have the right to vote on company matters, and preferred shareholders, who hold stock and do not have voting rights in the company, instead, they are entitled to a fixed amount of return, e.g. dividends. 

To find shareholders of a private company in the UK, the confirmation statement, including details of a company’s directors and shareholders, is publicly available on the Companies House, and can be used to identify a UK company’s shareholders.

Shareholders benefit from company profits, so they are interested in seeing the business grow. 

What is Shareholder Management?

Shareholder management is the process of a company manages it’s affairs with stakeholders. A well-structured and managed shareholder management process is important for every company, as it helps the owners record and keep track of all shares in the company and ensures control of the business is effective. 

Shareholder management involves reporting all changes within the ownership of the company, communicating with the shareholders, and consulting the board of directors. By implementing a shareholder management solution, investors will also be informed with any details regarding the shares of the company, as well as notifying shareholders if there are any changes. This should make communication between shareholders as well as within the business much easier.

Changing shareholders in a company can be done at any point, by transferring the shares of one individual to another. The company needs to inform Companies House of any new shareholders in the company, sharing their details with them during yearly return. 

The shareholder agreement and articles of association should contain clauses that concern the exit of a shareholder and when certain rights over buying and selling of shares are enforced. 

LawBite’s Shareholder Management Solution

LawBite offers a shareholder management solution: a comprehensive package for an active company to manage its affairs with engaged stakeholders. This package is quick and easy to use as a method of shareholder management, and can all be conducted online. If you want to create new share classes as your company raises capital, and need a straightforward way to administer share transactions and deal with the necessary resolutions, LawBite is here to help you.

LawBite offers features that cover aspects of forming a new business and managing regulatory compliance, such as:

  • Online company registers and core company information.
  • Change company offers and stakeholders. This includes information on how you can add a shareholder to your limited company, editing shareholders, and removing shareholders.
  • Incorporate a new company (incorporation fees are included).
  • Online storage for company related documents.

To find out more about our Company Shareholder Management Solution, click here

FAQs

LawBite’s shareholder management system may bring up queries regarding your business and its shareholders. We have assessed the most frequent questions to compile an FAQs section, to help you understand further what LawBite provides. 

  • What is shareholders’ fund?

Shareholders’ funds are the amount of equity that belongs to shareholders in a company. This can be calculated by subtracting total liabilities from a company’s total assets.

  • What is shareholders equity?

Shareholders equity is another term for shareholders funds. See ‘what is shareholders fund?’

  • What is a shareholders’ agreement?

A shareholders’ agreement details the management of the company and its relationship with its shareholders. You can find out more about what a shareholders agreement entails by reading our blog post, ‘What is a Shareholders’ Agreement?

  • Are acquisitions good for shareholders?

One of the main reasons for an acquisition is to generate more return for shareholders. The aim is to increase shareholder value, by capturing a greater share of the market. Therefore, an acquisition can be very attractive for shareholders of a company. 

  • Can a minority shareholder block a sale?

Shareholders generally cannot be forced to sell their shares. If a minority shareholder is refusing to sell, a buyer might back out of an attempt to take on a company, thus the shareholder has been successful in blocking the sale. If the shareholders’ agreement includes a drag along clause, this would mean the minority shareholder is essentially forced by minority shareholders to sell their shares - the minority shareholders are ‘dragged along’ if the majority are in favour. 

  • Can directors be shareholders?

A director can be a shareholder, but they have different roles within the company. In a private limited company, they might often be the same person, because only one director and one shareholder is needed. 

  • How do shareholders influence a business?

Shareholders can have a direct influence on a business through their voting rights on company decisions. Thus, they can exercise some control over the company, and the more shares they have, the more impact they will have on decisions within the company. 

  • How many shareholders can a private limited company have?

A private limited company must have at least one shareholder, who can also be a director, and thus owns all of the company. There is no maximum number of shareholders a private limited company can have. 

  • How to change shareholders in a corporation?

Shareholders can be changed in a corporation by being transferred from the current shareholder to the new person. The company needs to inform Companies House of any new shareholders in the company, sharing their details with them during yearly return.

  • How to remove a minority shareholder?

There is no right for majority shareholders to remove a minority shareholder, or force them to sell their shares in the company. The shareholders’ agreement and articles of association may contain details for clauses concerning the exit of a shareholder, or enabling majority shareholders to force minority shareholders to sell, so it is worth checking your shareholders’ agreement. 

  • Is shareholders’ equity an asset?

Shareholders equity represents the value of assets of a company, minus liabilities. It shows the assets that investors will own once the business’ liabilities are paid off. 

  • What is ‘substantial shareholding exemption’?

The Substantial Shareholding Exemption (SSE) exempts from the charge to tax gains or losses accruing on the disposal by companies of shares where certain conditions are met. This exemption applies to the disposal of shares in a trading company or holding company of a trading group. 

  • What rights do shareholders have?

Common shareholders have the following rights: voting power, ownership of part of a company and thus receive a share of the company’s profits, the right to transfer ownership, an entitlement to dividends, an opportunity to examine corporate books and records such as company bylaws, and the right to sue for wrongful acts.  

  • How do I add a shareholder to my limited company?

You can add new shareholders to your limited company by transferring existing shares from a current shareholder, or issuing more shares. 

  • Are shareholders liable?

Shareholders have limited liability, so they are only liable for the debts of the company up to the value of their own shares, and will not risk losing any personal money to pay for company debts.

You can get legal assistance from LawBite 

At LawBite, our lawyers can provide excellent legal advice for shareholder management. We will connect you to top-flight lawyers on our platform who can give expert advice regarding how you can go about setting up a shareholder management system, as well as how shareholders can affect your business. 

We use online tools and advanced technology to give your SME the legal advice you require, faster and cheaper. If you were looking to understand ‘what is shareholder management’, or you had any related queries about shareholders,  we hope this guide has helped you. 

You can learn more about LawBite’s company shareholder management solution and what this entails here.  

If you’re interested in finding out about LawBite and what other services we offer, you can visit our about us page. 

Additional useful information


Why Shareholder Agreements Are Important?

Why You Have Everything to Gain From a Shareholder Agreement

What is a Shareholders’ Agreement?

Shareholder Agreement - Free Template

Share Investment Agreement - Free Template

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.



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