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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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We are a private limited company and our shares are owned by

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We are a private limited company and our shares are owned by GP Practices in the NHS sector . A shareholding practice has sold themselves to a private sector organisation which means they are no longer eligible to be a shareholder in the company . In this situation The Articles deem the practice to be a" bad leaver " with a valuation procedure . For personal reasons the GP practice do not want to be termed "bad " and the valuation is small . Can they just voluntarily return or surrender their shares to the company for cancellation at nil financial consideration .

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. When you say that thw valuation is small - is it pay value? or less than £1000? You could transfer the shares by agreement at pay value and avoid the valuation but the buyer would still have to pay stamp duty on the actual value. If the company bought back the shares that is a complex process - does the company have cash in the bank to buy back the shares or would it do so out of capital reserves?

Customer: replied 1 year ago.
Hello , I am not familiar with the term "pay value" .We have not carried out a valuation because it would cost more that the sum involved ,certainly it is less than £1000 , the nominal value is £800 but we have little income or capital reserve . The shareholder does not want a payment from us , they just want to surrender them back to us and be finished . They just do not want to be called "bad " by the formal Articles process .

Hi, Thank you. My apologies that was an auto correct error it should say "par value" - this is the same thing as nominal value. There is no automatic right to surrender shares, the company would have to buy them back. If the company bought them back at nominal value, does the company have the profits in its bank account to make this purchase. There are two types of share purchases where a company can buy its own shares, a purchases out of profit and purchase out of capital. A purchase out of capital has a set form and is administratively complex, the directors would need to file a solvency statement and the auditors of the company would have to file a statement, and you would have advertise it in the London Gazette and wait a minimum of six weeks. A purchase out of profits is far more straight forward.

Potentially the shares could be forfeited or surrendered if they are unpaid? Have they been paid for?

Customer: replied 1 year ago.
Thank you ,buying them back at nominal value would mean they are effectively classed as a "good leaver " by our Articles because a good leaver receives nominal value or actual value whichever is the higher ,in this case nominal would be the higher value . I wanted to avoid this because it may set a precedent for future events . The shares were originally purchased at 30p for £1 share .Affording £800 par value out of profits is not a problem ,it is just my concern that if we do that we are ignoring our own Articles which decree mandatory transfer (which this is ) is either "good leaver " or " bad leaver " and this shareholder is a bad leaver .
Are you saying that for us to accept the shares back at nil consideration we would need to have a new resolution to add such clause to our Articles ? 01332 862090 if easier

Hi, Thank you. If the shareholder only paid 30p for shares worth £1 each then surely the shareholder owes the company money for the shares? If that is the case the company can just make a call for the balance (70p) to be paid, the shareholder can ignore the call and when the call ends the shares will be forfeited. There should be a section in your articles to forfeit shares - do you have such a section?

Customer: replied 1 year ago.
They may have a nominal value of £1 but they are not worth that much and never were ,it was just a means of funding the start up . We do not have a forfeit clause in the articles ,that is why I have a problem, we only have transfer clauses and the good leaver /bad leaver . Psychology plays a big part , the former GP practice know they are no longer eligible to hold shares and they know they are virtually worthless in £ terms . They could not stomach being called a "bad " leaver , we are dealing with a load of GPs here ,they all know each other ,fraternise etc . Are you saying we need to create a voluntary surrender clause to get over the problem

Thank you. It is irrelevant whether the company is actually worth its nominal value for this purpose. If the nominal value is £1 then the company has £1 of capital for ever share issued, that it is the limitation of the shareholders liability to that the company. Therefore if the nominal value represents a limitation on the shareholders liability, and the shareholder under paid for the nominal value then the shareholder is still liable for the remaining balance, which can be called on by the company. You can create in the articles a mechanism to forfeit the shares by making a call for the unpaid nominal value - this is entirely legal. If the call for payment is unanswered or you mutual agree it wont be paid, the shares can be forfeited.

Customer: replied 1 year ago.
are you saying we cannot just create a clause for voluntary surrender of shares by a shareholder at nil value .
Seems so much easier than your "making a call on unpaid value " route

Hi, Thank you. There is no mechanism for just surrendering shares the company either has to buy them back and cancel them - this could be at less than nominal value if all parties agree or they can be forfeited on the basis that they are not fully paid.

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Customer: replied 1 year ago.
I am still struggling to resolve the dilemma. We can incorporate a clause to require payment of the par value with forfeit if the payment is not made,we can also include a buy back by agreement clause . However what happens if they make the payment call , where do we go from there ? They want to surrender shares ( which in any event they are no longer eligible to hold ) whilst maximising their income . The company is happy to buy back but at minimum cost ,if the shareholder have paid full par value would we be obligated to buy back at full par ?

Hi, Thank you. The company can buyback the shares at whatever price the shareholder is willing to sell at, it does not have to be at par value.