Missing Shareholder – what do we do?

What happens if you can’t contact a shareholder of your company? What does the disappearance of that shareholder mean for the operation of your company? Have the gears of your company ground to a halt as a result of the missing shareholder throwing a spanner in the works? Fear not, there are remedial actions and practical precautions that you can take to ensure the smooth operation of your company.

Let’s start with the assumption that you answered ‘Yes’ to all three of the questions above. This may not have many practical consequences when the percentage of shareholding of the missing shareholder is small or insignificant. The issue arises when the missing shareholder’s shareholding awards them a degree of significant control over the company, particularly when considering voting rights and the payment of dividends.

I can’t contact a shareholder – where do I start?

The first course of action is to search for the missing shareholder. This can be through various means, such as by sending letters to the most recent residential address held within the register of members, putting out a notice in local and national newspapers, and more importantly, in The Gazette. The latter is particularly significant as The Gazette is the UK’s official public record (and has been since 1665!). Notices placed within The Gazette serve as a permanent public record of the company’s attempt to trace the missing shareholder and will become a crucial piece of evidence in the event of a dispute further down the line. All notices and attempts to contact the shareholder should be documented (receipts of postage and various other relevant materials should also be kept) and made in an appropriate manner. It is recommended that the company exhaust all reasonable steps to trace the shareholder, but that the expense should be proportionate to their shareholding.

Depending on the nature of their shareholding, and the rights attached to their particular share class, shareholders will usually have the right to vote on matters affecting the company and will have a right to receive dividends out of the company’s distributable profits. The fact that a shareholder is missing does not mean that these rights can be disregarded. In particular, where the missing shareholder’s shareholding awards them a degree of significant control, or where there is a large proportion of missing shareholders who accumulatively hold a level of significant control, decisions may not be able to be made by virtue of lacking the requisite proportion of shareholder consent. Failure to recognise the ongoing rights of the missing shareholders, and actions taken in the absence of a concerted effort to trace the missing shareholders may come back to hurt the company in the event that the missing shareholder eventually identifies themselves and challenges those actions

I still can’t contact a shareholder – how long do I wait?

Assuming now that the required consideration and requisite effort has been made to trace the missing shareholder, what’s next? The answer now lies within the company’s articles of association. The model articles for a private limited company provide for the forfeiture of any dividends remaining unclaimed after 12 years have passed since the date on which the dividend was due to be paid. Unclaimed dividend funds must be held aside and kept in a separate account as it is considered a debt due by the company to the shareholder which must be accounted for on the company’s accounts. The company may choose to buy back the shares held by the missing shareholder, and then subsequently cancel the shares, subject to the company’s articles. Similarly, to the unclaimed dividends, the money paid for the shares that were bought back must be kept aside in a separate account, and although there is no specific time period to keep the funds, conventionally it is agreed that it should be 12 years from the date of the buyback. This is likely the most effective choice as once the shares have been bought back and cancelled, the stalemate within the company is removed and the company should be able to operate as normal, albeit with the debt owed to the missing shareholder.

Practical precautions that companies can take to reduce the possibility of issues relating to missing shareholders can include maintaining a directory of shareholder email addresses, and incorporating bespoke provisions within the company’s articles of association which will set out the protocol in the event of a shareholder going missing which will reduce the administrative burden to the company.

Does your company have a missing shareholder? Are you looking to future-proof and protect your company from the fallout of a missing shareholder? Please contact us to speak to a member of our Corporate Team who can advise you on the most appropriate next steps for your company.