Family companies – can children hold shares?

In England and Wales* there is no prohibition on a person under the age of 18 (a minor) becoming a member of a company and holding shares.  However, the child can reject or set aside the agreement for the shares while they are still under the age of 18.

 

The best practice, therefore, is to avoid a minor becoming registered as a member of a company. This is especially so if the shares are partly paid.  Steps can be taken so that the underlying (beneficial) ownership can be transferred to the child but not the legal ownership.

 

A trust can be set up for the benefit of the child.  The shares are held by the trustee/s in accordance with the terms of the trust.  This can be set up to be very flexible.

 

Another alternative is for the shares to be transferred into the names of suitable adults e.g. their parents with a form to transfer the shares (a stock transfer form) then executed.  The form is signed but undated.  This is not put into effect until each child reaches the age of 18.

 

It is also important to bear in mind the implications of this arrangement for the company generally.  Shares have voting rights attached to them.  As such the holders of those shares may be able to block certain resolutions.  In many cases a declaration of trust is entered into setting out useful provisions as to how the parent will deal with the shares.  These issues need to be considered and it may also be necessary to make the holders of the shares parties to any shareholder agreement in place in relation to the company.

 

 *Please note that the position in Scotland is different.  In Scotland 16 year olds have full legal capacity by virtue of the Age of Legal Capacity (Scotland) Act, 1991, although those aged between 16 and 18 can apply to have agreements set aside before they attain the age of 21.

 

K O’Reilly 20.6.11

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