Shareholder agreements

Can children be shareholders in a company?

Can children be shareholders in a company? For example, so that they can be issued with dividends, or would it be normal for one of their parents to hold the shares on trust on their behalf instead?

There is no Companies Act or other legal restriction on minors (children under 18) holding shares in a company. A child can be a subscriber to a company’s memorandum of association. Therefore, a company can choose to accept a child as a shareholder provided its articles of association do not contain a provision to prevent children as shareholders (FYI: neither Table A (for Companies formed under the Companies Act 1985) nor the model articles (for Companies formed under the Companies Act 2006) contain an express prohibition on minors as members). However, a company has the power to refuse to register a transfer of shares to children.

Furthermore, where children are registered as a shareholders of a company, they will be entitled to repudiate (reject) that membership either during their childhood/minority or within a reasonable period of attaining the age of 18.

Prior to repudiation, a child who is registered as the owner of shares in a company enjoys the full powers and obligations of membership, and will be liable for any calls on the shares that are made during this period. However, if the child elects to repudiate the shareholding, they will be relieved of all future liabilities in relation to the shares, including any amounts then unpaid on the shares.

Can children sign a shareholders agreement?

There isn’t a definitive law or case on this point. Children can sign shareholders resolutions or a shareholder agreement because they can “enjoy the full powers and obligations of membership” but it still appears to be an open question, untested by the Courts, as to whether a child could later purport to refute a particular vote that they cast. It would seem that they could and therefore a shareholder agreement would be of little benefit in regulating the rights and powers of children in a company.

It also follows that getting shares transferred back from a child is almost impossible because they can repudiate (reject) any transfer document which would void the transfer to the new owner at any time.

What is the solution to children holding shares in a company?

A common solution is for the parent to hold the shareholding on behalf of the child as a kind of trust. The parent is registered as the legal holder of the shares at Companies House and also in the company’s share register. The parent then holds the shares as ‘nominee’ for the child under a share nominee document, which is the equivalent of the parent holding the shares on trust for the child.

The beneficial ownership of the shares sits with the child, while the legal ownership remains with the parent.

can children be shareholders?