How do you return someone's share capital?

[MitchT]

I'm one of three people working on a project in our spare time. We set up a limited company on the advice of a business mentor. Said company had a total share capital of £2.00. One of us has now left the business after it became apparent that he didn't have the capacity to undertake his portion of the work. He had a 25% share of the business worth 50p. He has resigned as a director and completed and returned the form needed to return his shares, however, he hasn't cooperated in providing his bank details for us to return his 50p share capital. Does the return of his share capital need to be completed to make the return of his shares legally binding and, if so, does there have to be a "paper trail" proving that it has happened, or would it be enough for us to post a 50 pence piece to him?

Edited by MitchT on Sunday 13th November 14:18

[Countdown]

Has he been "terminated" on Companies House records?

AIUI that's all you need to do. the 50p can sit on the balance sheet/bank account (just move it from Share capital to Creditors).

[MitchT]

He's resigned as a director and this is reflected on companies house, if that's what you mean.

[MustangGT]

Did you consider each of the remaining 3 simply buying a third of his shares?

[Granadier]

This sounds like the M&A deal of the decade!

[MitchT]

MustangGT said:

Did you consider each of the remaining 3 simply buying a third of his shares?

NB. Two remaining - the departed was one of three original people.

I suppose that would have been an option, but him returning his shares to the business so we could redistribute them after that seemed like materially the same thing and all we could find online was a share transfer form for this process.

In a nutshell, bloke became more and more uncommunicative until it was impossible to continue with him and made everything as difficult as possible in terms of moving things forward. With no expertise we've had to feel our way in the dark in terms of knowing what to do, and concluded that him agreeing to resign as a director and hand back his shares was the only option. We did eventually manage to get him to resign and sign a share transfer form, so that's where we're at.

What we need to do now is understand if there needs to be concrete evidence of him receiving his share capital from us in order for the process to be considered complete, in the eyes of the law. If so then we need to do a bank transfer so there's a paper trail, and will probably have to wait months until he can be bothered supplying his bank details. If not then we can simply send him a 50 pence piece by signed-for post.

That's what needs clearing up at this stage. Any questions of "why didn't you do this or that?" are irrelevant as we're beyond that stage. We just want to make sure, if the business is worth something at some point in the future, that he can't come back and claim a share of it because he never got his 50p.

[MaxFromage]

Do you not have an accountant, as this sound completely wrong?

- You can't use a stock transfer form to buy back share capital. You have to fill in a number of forms and is not a simple process
- If you had bought it back (which you haven't), then you couldn't transfer the shares to the other shareholders as they're cancelled
- What was the actual value of the company versus the nominal value of the shares?

Essentially this ex-shareholder isn't an ex-shareholder as it stands, so please get an accountant to sort it out before you do anything such as pay dividends.

FYI- the easiest route is for the existing shareholders to buy the shares off him using the stock transfer form. You need to consider the value of the business though.

Then you will need to make sure Companies House is up to date with Confirmation statements and PSC forms.

[MustangGT]

I agree with Max here, get an accountant and lawyer involved before you land yourselves in a real mess.

[MitchT]

To answer your questions in order...

• Yes, we have an accountant. He said complete a stock transfer from and give the exiting director his 50p back.
• The company has no value. It's dormant while we build a digital product and seek the investment needed to launch it. The exiting director was responsible for building the product and had stalled at about 80% complete and become wholly uncooperative, hence the situation we're in.
• We're up on confirmation statements and PSC forms. Just need to close off the exchange of shares and share capital before we can complete these.

[MaxFromage]

MitchT said:

To answer your questions in order...

• Yes, we have an accountant. He said complete a stock transfer from and give the exiting director his 50p back.
• The company has no value. It's dormant while we build a digital product and seek the investment needed to launch it. The exiting director was responsible for building the product and had stalled at about 80% complete and become wholly uncooperative, hence the situation we're in.
• We're up on confirmation statements and PSC forms. Just need to close off the exchange of shares and share capital before we can complete these.

Ok. If the form looks like the one linked https://doc-safe.co.uk/resources/Form-J30.pdf ,you need a new accountant.

I'd argue the company isn't dormant from your description, but it sounds like there's no real value yet, so that's good. Therefore you just need to transfer the shares from the exiting shareholder to the remaining shareholders (using the above form) and pay the exiting shareholder directly.

[caziques]

If this was New Zealand, two ways of doing it.

Transfer the shares from the problem person to the other two,

or set up a new company as you want and let the old one be struck off, just make sure the company has no assets at this point.

I suspect some of this stuff is quite lax in NZ in comparison to the UK - nobody polices small companies, "illegal" share transfers are not that uncommon.

[I Like Tea]

You could also just dilute him down by issuing an additional £100 of share capital split between the 2 remaining directors.

[MaxFromage]

I Like Tea said:

You could also just dilute him down by issuing an additional £100 of share capital split between the 2 remaining directors.

You could be that wouldn't help much and you could end up losing a large chunk of the company in the future, together with lots of legal fees.

[wattsm666]

I Like Tea said:

You could also just dilute him down by issuing an additional £100 of share capital split between the 2 remaining directors.

Need to be fully aware of ‘fraud on a minority’ will only come home to roost when there is value in the shares.

[MitchT]

MaxFromage said:

Ok. If the form looks like the one linked https://doc-safe.co.uk/resources/Form-J30.pdf ,you need a new accountant.

I'd argue the company isn't dormant from your description, but it sounds like there's no real value yet, so that's good. Therefore you just need to transfer the shares from the exiting shareholder to the remaining shareholders (using the above form) and pay the exiting shareholder directly.

The form looks like that one. I've checked it and the transfer of shares is to the remaining two of us, not to the company as I previously thought.

caziques said:

If this was New Zealand, two ways of doing it.

Transfer the shares from the problem person to the other two,

or set up a new company as you want and let the old one be struck off, just make sure the company has no assets at this point.

I suspect some of this stuff is quite lax in NZ in comparison to the UK - nobody polices small companies, "illegal" share transfers are not that uncommon.

We've been advised that if we dissolve the company in the UK then anything it owns becomes the property of the crown and we'd then have to buy it back.

I Like Tea said:

You could also just dilute him down by issuing an additional £100 of share capital split between the 2 remaining directors.

We've been advised that if we issue new shares we'd have to offer him the opportunity to buy them too, so the only way to guarantee that we'd dilute him would be to issue them at such a high price that he wouldn't want to, but then we'd also have to pay the same price ourselves, which would not be affordable for us.

[OMITN]

All of that is a bit OMG….

1. If the shares have been transferred to you both as shareholders, then you own the shares. You should have paid for them - even at a nominal value. The share capital still exists as it was previously. You must (1) update the company books ( the register of members is the priority) (2) pay any stamp duty owing (3) issue new share certificates and cancel the outgoing shareholder’s certificate (4) remember to file an updated confirmation statement when it’s due (5) pay the consideration for the shares. But remember, none of this is the company - this is you personally..!

2. If the shares have been bought back by the company, then you’ve done this all wrong..! If you don’t this, then go and speak to a lawyer and get it sorted..!

Also, has the outgoing shareholders been removed as a director from Companies House? By the sound of things you haven’t got a waiver of claims, so watch out in the future.

[MitchT]

I've already stated above, but here it is again...

The ex-director has been removed as a director on companies house.
He has completed a stock transfer form returning his shares to us.
We have not returned his share capital yet because he has not provided his bank details, despite is requesting this information twice.

My original and still outstanding question, therefore, is...
Is it adequate to send him a 50 pence piece in the post for the nominal value of his shares, or do we have to do it via bank transfer so there's a paper trail to prove that we've paid him? Or, is the fact that he has completed a stock transfer form returning the shares to us enough to close the matter?

[MustangGT]

MitchT said:

I've already stated above, but here it is again...

The ex-director has been removed as a director on companies house.
He has completed a stock transfer form returning his shares to us.
We have not returned his share capital yet because he has not provided his bank details, despite is requesting this information twice.

My original and still outstanding question, therefore, is...
Is it adequate to send him a 50 pence piece in the post for the nominal value of his shares, or do we have to do it via bank transfer so there's a paper trail to prove that we've paid him? Or, is the fact that he has completed a stock transfer form returning the shares to us enough to close the matter?

Once again, you are not correct. You have to buy his shares, or the company has to agree to reduce its share capital. He cannot simply 'return them'. The paperwork involved in a reduction of share capital is not as you described earlier. The simple solution is for each of the remaining shareholders to buy his shares in whatever distribution you want. This should be at current market value as determined between all 3 of you. Nominal value of the shares is irrelevant once they have been initially issued.

Removal as a director is totally separate to the shares issue.

[MaxFromage]

MitchT said:

I've already stated above, but here it is again...

The ex-director has been removed as a director on companies house.
He has completed a stock transfer form returning his shares to us.
We have not returned his share capital yet because he has not provided his bank details, despite is requesting this information twice.

My original and still outstanding question, therefore, is...
Is it adequate to send him a 50 pence piece in the post for the nominal value of his shares, or do we have to do it via bank transfer so there's a paper trail to prove that we've paid him? Or, is the fact that he has completed a stock transfer form returning the shares to us enough to close the matter?

Ok. So you have used the stock transfer forms for him to sell (transfer) his shares to you (forget about 'returning' share capital).

Personally I would want to be able to show the payment for the shares going from your own personal bank account to his, to make sure there is no comeback in the future.