Case Update: Transfer of Beneficial Interest in Shares

A recent Court of Appeal case, LA Micro Group (UK) Ltd v LA Micro Group Inc [2023] EWCA Civ 214, ruled that an agreement to transfer the beneficial interest in shares in an English company, LAUK, to the legal owners of those shares was effective, even though the agreement was not in writing.

In this case, LAUK was established as a joint venture between B, F and L. The two shares in LAUK were legally owned by B and L, but the beneficial interest in the shares was held on trust for (1) B and (2) a US company which was jointly owned by F and L (Inc).

In 2010, the relationship between F and L soured, resulting in F telling B that he was dissolving Inc and wanted nothing further to do with LAUK. B subsequently sought a declaration that Inc had contractually surrendered its beneficial interest in the LAUK shares, causing them to be owned both legally and beneficially by B and L.

The High Court ruled that in order to transfer the beneficial interest in the shares, certain formalities under the Law of Property Act 1925 must be complied with, namely that the transfer must be in writing.

The Court of Appeal, however, ruled that an agreement (which includes a verbal agreement) to transfer a beneficial interest in shares for valuable consideration resulted in a constructive trust in favour of the recipient and dispensed with the requirement for the transfer to be in writing.

This decision clarifies that the beneficial interest in shares can be transferred by agreement, even if that agreement is not documented in writing. This does not, however, impact on the requirements for transferring the legal ownership of shares, which must usually be done using a stock transfer form.

BHW has a Corporate & Commercial department which regularly advises on share transfers and joint ventures. If you would like advice in relation to either of these issues, please contact the Corporate & Commercial department by emailing info@bhwsolicitors.com or by calling 0116 289 7000.