East London Solicitors

Can company shares be sold to anyone or any organisation I choose ?

This all depends on what the company’s articles of association or shareholder agreement states. Most articles or shareholders agreements for small companies do restrict sale of shares and often provide for pre-emption rights for the existing shareholders.  In practical terms, we would certainly not recommend trying to sell shares without complying with any restrictions since for share transfers to be legally valid, they need to be registered; failure to follow the company rules would be likely to result in the director refusing to register any transfer.

What percentage ownership of shares gives me control or blocking rights ?

Again, always check the company’s articles of association first. If the articles are unamended, the following is the general position :-

• 5% shareholding entitles you to call a general meeting
• 25% entitles a shareholder to block a special resolution
• Over 50% enables passing of an ordinary resolution
• Over 75% gives total control in practical terms, since this enables passing of a special resolution, which in turn allows powers to push through all major decisions about the running of a company.

What’s the best way to avoid a shareholder dispute ?

The best starting point will always be to have a clear shareholder’s agreement which sets out clearly the rights and responsibilities of the shareholders. Such an agreement, as a starting point, should certainly include :-

• How the company should be capitalized
• Clear policies on dividends,  any directors’ fees and salaries
• Shareholder’s practical contributions in terms of any time commitment to the company and other responsibilities
• Establishing clearly what the company’s key objectives are
• Clear rules about borrowing, staffing or incurring costs
• What happens on death, sale of shares or retirement.

Why are companies placed into adminstration ?

• They cannot pay their debts as they are due.

• Every company in Administration is guarded by moratorium. This means that no legal action can be taken against the company. The company is protected from its creditors while a debt restructuring plan is being prepared.

• Enterprise Act 2002 (“EA”) states that the purpose of Administration is to support recovery of companies and not winding them up.

In Administration, a person, the adminstrator,  is employed under the Insolvency Act 1986 to manage the company’s affairs, business and property. The role of administrator is appointed by either:

• an administration order by the court;
• the holder of a qualifying floating charge; or
• by the company or its directors.

An Administrator is an officer of the court and his roles and duties include:

• entering into contacts on behalf of the company in order to rescue the company
• taking care of the daily business management
• achieving greater results; if this cannot be done the Administrator is authorised to sell the property in order   to pay the secured and preferential creditors
• presenting the proposal to the creditors and stating why it has not been achieved
• The appointment is for one year but may longer with the consent of creditors or the court.

Click here for the main business law page or here for the commercial law blog for East London.