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Buachaill, Barrister
Category: Law
Satisfied Customers: 11377
Experience:  Barrister 17 years experience
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I am looking to sell my shares (50%) in my limited company

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Hello, I am looking to sell my shares (50%) in my limited company to which I am currently a director for. There is also another director in the company who is also the other 50% shareholder.I have read in our model articles:The directors may refuse to register the transfer of a share, and if they do so, the instrument of transfer
must be returned to the transferee with the notice of refusal unless they suspect that the proposed transfer
may be fraudulent.But I have read online the following:Directors have a discretion to refuse any transfer
Many companies have this by default. In many cases it is not the ideal option, as it has serious limitations that are not always apparent.
The decision to refuse must be made by the directors collectively, not by an individual director. As a directors' decision, each director will have one vote on the resolution, regardless of the number of shares held. To refuse a transfer under such a provision, the directors must be capable of passing a valid collective resolution. This will not be the case if they are deadlocked or inquorate. For example, in a two person company, if one of them proposes to transfer his shares, the other cannot stop the transfer as s/he cannot pass a resolution to that effect.
The discretion to refuse a transfer is not a power given to the shareholders. This may be very important if the directors and shareholders are not exactly the same people.
Directors who exercise the power to refuse must notify the transferee as soon as practicable and in any case within two months, and must provide reasons for refusing, even if the articles say to the contrary (Companies Act 2006, s. 771).My question is, is the above paragraph correct? Since there are only 2 directors and shareholders, does it mean that she cannot stop the share transfer as we won't agree on refusing it?Thank you.

Hello, and thank you for your question. I am your Expert and I will provide the answer you require.

1. Dear Farhan, essentially in order that a transfer of share be refused, there needs to be a majority of directors refusing to register the transfer. In your case, the one vote each stalemate of the directors means that no resolution to refuse to register a transfer can be passed. So, in point of fact, no transfer by one of you may NOT be refused to be registered. The paragraph you have quoted is correct in this regard. Be aware additionally, that the power to refuse to register a transfer is a very exceptional power and one which a court will only uphold in circumstances where there is a clear majority of directors vote to refuse transfer. There will be no mechanism here, where this lady can get a transfer refused when there is only two directors.

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