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Does a failure to file a SH01 affect the validity of an

allotment of shares? JA: Are you...
does a failure to file a SH01 affect the validity of an allotment of shares?
JA: Are you in the UK or are you in the States?
Customer: UK
JA: What action has been taken so far? What's your ideal outcome?
Customer: No action so far. ideal outcome is that by not filing SH01 - the shares are not valid
JA: Anything else you want the lawyer to know before I connect you?
Customer: Annual return has been completed specifying additional shareholder
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Customer reply replied 1 month ago
Our Limited Company (UK) was incorporated in March 2011 with 2 x Shareholders (both directors) with 100 ordinary shares issued on a 50/50 basis (50 shares each).
In April 2013 we appointed an additional director.
In Nov 2013 an annual return was submitted to companies house and indicated 3 x Shareholders with 50 Shares each (150 shares total)
We never submitted an SH01 Form to companies house.
No Share certificate was issued for the new director.
Sep 2014 the new director resigns from his position in the company.
Oct 2015 the new director is terminated as a director officially with companies house.
Subsequent annual returns / annual confirmation statements have continued to be filed indicating 150 shares and 3 Shareholders.
We want to know if this person is legally a shareholder of our business or not? And can we just amend the next confirmation statement to indicate 2 x Shareholders of 50 shares each (100 Shares total)?
Our annual filed accounts have always only ever indicated 2 x Shareholders with (100 Shares total) because our accountant does not accept that the shares were ever issued to the additional director.
I look forward to your clarification of this matter,
Many thanks
Answered in 1 day by:
10/19/2017
Alex J.
Alex J., Litigator
Category: UK Law
Satisfied Customers: 3,760
Experience: LLB, LPC, DELF
Verified

Thank you for your question and welcome. My name is ***** ***** I will assist you. Did the subscriber pay for the shares? Was the share issue made under a director authority under the Companies Act?

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Customer reply replied 1 month ago
Hi Alex,The subscriber did not pay for the shares.I'm not sure exactly what this question means: "under a director authority under the Companies Act?" - can you explain this to me?thanks,James

Thank you. When the shares where issued - did you pass any resolutions or hold a board meeting? Did the shareholder send a letter or email subscribing for the shares? Kind regards AJ

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Customer reply replied 1 month ago
Hi Alex,
thanks for your reply:
re - Did you pass any resolutions or hold a board meeting? - No to both questions
re - Did the shareholder send a letter or email subscribing for the shares? - No
Thanks,
James

Hi, Thank you. If this is the case then there has been no valid issue of shares - therefore this individual is not a shareholder. You need to update the statement of capital at Companies House and the annual return. I would recommend recording this in a board meeting first - and acknowledging that an error was made. The annual return is just a snap shot of the company and an administrative record. Kind regards AJ

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Customer reply replied 1 month ago
Thanks Alex, if we do this, and the person decides to pursue this matter further, (as they believe that the shareholding is correct), what would be the implications of this? thanks, James
Customer reply replied 1 month ago
Also, from a legal perspective, and for validation of your advice - are you a registered with the law society in England and Wales? And do you have experience in this specific field? I need to say to my other business partner that this is sound legal advice. Sorry for this question but I can't see anywhere on this site that displays your credentials, many thanks, James

Thank you. I am a qualified solicitor specialising in company law. The only conceivable argument I can see is that he would say he is a partner and the shares are a partnership asset in the business. He has no other evidence that he ever paid for the shares, subscribed for them or even consented to them being in his name. What was he actually meant to do in order to earn the shares?

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Customer reply replied 1 month ago
Hi Alex,
Thanks for info.
Our intention was to have him as a full time member of the team on an ongoing long term basis.
He decided he was not happy working at the business and walked out 2 years in.
During his time in employment here he took a low salary which could be deemed as being in lieu of payment for the shares, although it was never agreed formally that this was payment for anything. The company was new and growing, and our intention was to have him working with us for the foreseeable future, not to have him leave soon after joining owning a 3rd of the business. If asked at the time if we'd give someone a third of the business for 2 years low paid work, the answer would absolutely have been no.
Could it cause issues that we had intended to make him a shareholder (based on a long term commitment to work from him)? And that he took a low salary during his time working here?
Thanks
James
Thank you. Yes that could certainly be the basis of his claim. But the worst case scenario would be that a court would order you pay him the value of the shares - they are unlikely to make an order forcing you to issue shares to him. Does he have an employment contract?
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Customer reply replied 1 month ago
Hi Alex,
No, he didn't have an employment contract, we didn't have contracts at all at this stage in the business. Is that a bad thing?
And if a court ordered us to pay him the value of the shares - how would the shares be valued? and would that be the current value, or the value when he walked out of the business?
thanks,
James
Thank you. It is not bad - it could just be otherwise used as evidence to show you owe him unpaid salary.
The shares will have to be valued by an independent valuer - could be an accountant that the parties agree on for example. You could argue that the valuation be done on the day he left - but up until that point you should deny that the shares were ever effectively issued. Is there any way to settle this amicably - is it likely he will sue you?
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Customer reply replied 1 month ago
Hi Alex,
It's a difficult situation as he's a family member (brother), and he's sadly cut all ties with us since walking out. He's purposely made verbal communication almost impossible, but has communicated in writing a couple of times regarding us buying his share of the business - this was soon after leaving - there's been no communication with him at all for over 2 years.
Also, soon after leaving the company he had a legal firm contact us to defend his position as a director of the business and to demand to know our future intentions of the business.
In email correspondence I have mentioned that we intend to "make him an offer" for his share of the business, and in another letter I refer to him as "letting down his fellow shareholders" but both these comments were only said because I mistakenly thought he was a shareholder.
I'm not certain how amicably this can be resolved as he is genuinely a difficult person to deal with, very stubborn, blames everyone else etc. I'd also guess he's quite likely to try and sue us if we just remove him as a shareholder via the suggested "updated statement of capital and annual return".
I'm assuming that if we are to now legally acknowledge him as a shareholder we'd have to update companies house with the relevant SH01 form and we'd have to pass the resolutions and hold a board meeting and issue share certificates?My feeling is that a well drafted letter explaining to him that we actually never issued him any shares, and that we have now amended the records at companies house to reflect the true shareholding of the business. Backing this up with a "but we do want to pay you a fair amount for what we believe a 1/3 share of the business would have been at the time of your departure" - would be a good way to go. And then we offer him what we actually believe was a fair amount at the time. I'm guessing this would all be legally above board and a potentially positive outcome for all parties - what do you think?

Thank you. The reality of the situation is that the shares were never issued to him. It would be perfectly legal to acknowledge his claim in the dispute if that involves offering a payment to settle the dispute. As he has cut all contact - the letter has to come from either the board of directors or a lawyer. You are right - simply updating the Companies house records and not informing maybe antagonistic - but ultimately you do have to make sure the correct information is filed at Companies House. Ultimately if he ignores your settlement attempts - you could remove him as a director and just wait for him to make a claim. If the company ever declares a dividend or you sell the company - he has no right to either proceeds as his shares don’t exists - so the onus is on him to try and resolve this. Kind regards. AJ

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Customer reply replied 1 month ago
Hi AJ,
final question - We removed him as a director already (2 years ago) - did you mean remove him as a shareholder? - "you could remove him as a director and just wait for him to make a claim".
Many thanks for your detailed response on this.
All the best and probably a bit boring for you but I should one day log on and let you know what the final outcome is:-)
Anyway, all the best and thanks again,
James

Hi, Thank you. I meant as a "Director" - my apologies I had missed that you had already done that. The reality of the situation is he is not a shareholder - so you cannot remove him as a shareholder.

I would be most grateful if you would take a moment to rate my answer? - I wish you the best of luck - please do not hesitate to contact me with any follow up points? Kind regards AJ

Alex J.
Alex J., Litigator
Category: UK Law
Satisfied Customers: 3,760
Experience: LLB, LPC, DELF
Verified
Alex J. and 87 other UK Law Specialists are ready to help you
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Customer reply replied 1 month ago
Hi AJ, we'll press on and update the companies house confirmation statement to align it with the actual of 100 shares split 50/50 with the existing directors.
I've just rated you 5 stars on the site and thanks for all your help.
Best,
James
Customer reply replied 1 month ago
Just left you a small tip too - many thanks, James

Thank you very much. That is very kind - please let me know if I can assist any further.

Kind regards AJ

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