What you need to know about joint shareholdings

Theoretically, a company may register a share transfer or allotment of shares into the joint names of any number of joint holders. For practical reasons, however, many companies limit the maximum number of joint shareholders via the articles of association. It’s common to set an upper limit of four or ten joint holders. Even where a limit is not defined in the Articles, private company Model Article 26 gives directors the right to refuse to register any share transfer. They they might choose to do if a large number of joint transferees are included on a stock transfer form.

In short, no, they don’t share the same shareholders’ rights. In effect, Section 286 of the Companies Act 2006 confers more rights to the joint shareholder named first in the company’s register of members than to the other joint holders.

According to the Companies Act, it is the first named (or senior) holder who has the right to vote at company meetings, appoint a proxy and sign any shareholders’ written resolutions. The law does not give these same rights to other joint shareholders, partly to ease the administrative burden on companies.

While the law restricts voting by joint shareholders other than the senior holder, it is less clear on other matters. There is no set legal process on how the senior shareholder should arrive at their voting decision. The law is silent on the extent to which the vote they cast should reflect the views of multiple joint holders. Therefore, it is a matter for the joint holders of shares to agree privately among themselves.

There is also some dispute on whether or not the Companies Act restricts other joint shareholders from attending meetings. A prudent company might therefore permit their attendance. However, they must ensure only one vote is cast in respect of a joint shareholding, and by the first named holder.

Again, no. The company is only compelled to communicate to the first named joint shareholder any of the following:

• Notice of annual general meetings and extraordinary general meetings
• Proposed resolutions, including copies of written resolutions
• Copies of the company accounts
• Dividend notices and vouchers
• An offer in respect of a rights issue or bonus issue of shares

Delivery to the senior holder is deemed to be delivery to all joint shareholders. That means, in practical terms, that it’s the first named joint shareholder with whom the company would interact in respect of a joint shareholding. It’s important, therefore, when allotting or transferring shares to joint holders that the person named first is the one who is most appropriate to deal with correspondence. They should be willing to do so and have the trust of the other joint shareholders. They should also have time and inclination to share any information with the other joint shareholders.

Again, joint shareholders should agree among themselves a procedure and timescale for the senior shareholder to share relevant information.

There’s nothing to stop a company sending information to all joint shareholders. The law, however, does not require it. A requirement to communicate more widely with joint shareholders might be included in the company’s articles of association, although that would be very unusual.

Model Article 24 states that only one share certificate needs to be issued in respect of a joint shareholding. This will therefore apply to all those private companies that have adopted the Model Articles. Moreover, it makes practical sense for there to be just one valid certificate for a joint shareholding in issue at any one time. It would again be standard practice for this to be sent to the first named joint holder and for this to represent delivery to all joint holders.

In a separate article, we look at what you should include in a share certificate for a joint shareholding.

Especially given the importance of the right person being named first, sometimes joint shareholders will request the order in which they are recorded to be changed. It’s common for this to be accepted by a company without the need for a full stock transfer form to be completed. They will, however, look to ensure that the request:

• is in writing;
• confirms that the shares have not been sold or otherwise disposed of; and
• is signed by all the joint shareholders.

One joint shareholder alone usually cannot ask the company to change the order in which the joint shareholders are shown in the register of members. That is equally true for the first named holder as the other joint shareholders.

We look at share transfers in other articles. That starts with the process that should be followed for a share transfer. The main specific requirement for a joint holding is that the signature of all the joint shareholders is required on the stock transfer form for a valid transfer to take place. It’s not enough for the first named joint holder to sign. On their own, any single joint shareholder cannot request that the shares (or any proportion of them) be transferred.

These requirements apply to all types of transfer. That includes gifts and other disposals as well as a sale of shares.

In addition to transfers of joint holdings, the signatures of all joint shareholders will usually be required in the following circumstances:

• On dividend mandates
• As part of an agreement to receive notices and other documents via email
• To split one holding into constituent parts or consolidate multiple joint holdings

There can also be obligations shared by all the shareholders in respect of a joint holding of shares. In particular, when shares are unpaid or partly paid the liability to pay calls tends to be joint and several.

The answer here really depends on your interpretation of the law, and particularly the Companies Act 2006. Companies House, whose interpretation counts for quite a lot, do not allow the formation of a new company with joint shareholders subscribing for shares. Instead, they require each subscriber of a new company to be a single natural person or a single corporate entity.

However, there’s absolutely nothing to stop companies, once formed with single subscribers, transferring the subscriber shares to joint shareholders.

There’s also some debate over whether joint members are permitted in a company limited by guarantee. This is because the Companies Act makes no specific reference to such joint guarantors. Opinion is divided, but more prudent companies limited by guarantee will therefore not permit joint members.

Further restrictions may be applied in a company’s articles of association.

If a joint shareholder dies, the shares pass automatically to the remaining joint holder(s). That’s rather than, as with any property not held jointly, according to the deceased’s will or the law of intestacy.

As with the death of any other shareholder, the company will require sight of the joint holder’s death certificate or an authenticated copy. The company’s register of members can then be updated to show the holding vesting in the name(s) of the surviving joint shareholder(s).

It’s also considered good practice for the company to:

• Cancel the existing share certificate and issue a new one in the names of the surviving shareholder(s); and
• Where appropriate, obtain a new dividend mandate from the surviving joint shareholder(s).

The death of the first named joint shareholder can pose a particular challenge. That’s because they will be the usual contact point used by the company in respect of the joint holding. Sometimes, companies allow address details of second and later named joint shareholders to fall out of date. This can then cause problems when one of them needs to be contacted in respect of the holding. It’s always prudent, therefore, to keep details of the second and any later named joint shareholders as up to date as possible.

The rules on whether each individual joint shareholder counts as a person with significant control are somewhat counterintuitive.

A joint shareholding is not treated singly for the purposes of the PSC register. Instead, every joint shareholder is deemed as holding the total number of shares or rights that are held jointly. This will usually mean that, if the joint shareholding represents more than 25% of the company’s shares of voting rights, every joint holder must be recorded in the company’s PSC register.

Our article explaining who counts as a person with significant control includes an example dedicated to joint shareholdings and how to record them.

A previous version of this article was originally published on 10 January 2014.