As the name suggests, untraceable shareholders are those shareholders that cannot be located. This can happen for several reasons, including a shareholder relocating and not updating their details with the company, or a shareholder passing away and the family are unaware that the deceased was a shareholder of a company.
This can cause several issues for companies, which are often overlooked or not understood. First and foremost, it can hinder a company’s ability to make decisions and can cause disruption when a company declares a dividend.
Decision Making
Certain decisions have to be made by the shareholders of the company. If a written shareholder resolution is circulated, any shareholder which does not respond can hinder the ability to pass that resolution. This is because unless sufficient shareholders approve the written resolution it will lapse, however this takes some time (usually 28 days) and uncertainty will remain in that period. If one or more shareholders with an important percentage shareholding are untraceable, this could lead to a company being unable to pass a resolution. This therefore affects its overall ability to effectively make decisions, for example amending the company’s articles, disapplying pre-emption rights and changing the company’s name.
The company could hold live meetings rather than circulating a written resolution to fix this issue. This is because only those present at the meeting count towards the quorum, compared to a written resolution where all the shareholders count towards the quorum.
Dividends
Dividends are payable to all shareholders or, depending on the company’s articles, certain classes of shareholders. If a shareholder cannot be located, the company won’t be able to pay their dividend to them. Statute provides that this money must be held in a separate bank account for 12 years. After 12 years, if the dividend is not claimed by the shareholder, they are no longer entitled to it. Waiting 12 years to see if a dividend is claimed is an inefficient use of the company’s resources that could otherwise be used more productively.
The company can pass a resolution to amend the company’s articles to deal with the issue of unclaimed dividends, but whether this resolution can be passed depends on the decision making issues already mentioned.
Solutions
There are a couple of ways in which the issues caused by untraceable shareholders can be resolved more permanently. It is always recommended to attempt to find the untraceable shareholder as a first port of call. This can be done by posting a notice in the London Gazette or a national newspaper.
If you have exhausted all means of communication to find the untraceable shareholder, the company may be able to undertake a buyback of the shares owned by the untraceable shareholder(s). This is a complicated process but provides for a long-term solution to the problem. There are strict statutory requirements which must be followed to effect a buyback of shares, and the failure to comply with these requirements can void the acquisition of the shares or result in an offence being committed by the company and its directors. We have a great deal of experience in advising clients on share buybacks and would be delighted to assist you with the process.
If you think your company may have untraceable shareholders, or if you need help with any of the other topics mentioned in this article, please get in touch with BHW’s Corporate team on 0116 289 7000 or info@bhwsolicitors.com.