Dealing with untraceable shareholders: strategies to protect your company

Put simply, untraceable shareholders are those who cannot be located. Shareholders can become untraceable for several reasons such as failure to update their details following relocation or, where a shareholder dies, and their personal representatives are unaware that the deceased was a shareholder of a company.

Untraceable shareholders can cause several issues for companies. Amongst others, a shareholder is likely to have the following rights:

The right to attend general meetings and vote

Shareholder resolutions are required in some circumstances, for example, approving amendments to articles of association and to disapply pre-emption rights. It can become problematic if one or more shareholders with a significant shareholding becomes untraceable thus preventing a company from passing written resolutions.

As an alternative, a company may choose to hold in-person shareholder meetings meaning that only those who are present at the meeting count towards the quorum.

The right to receive a dividend

A company also has an obligation to distribute any dividend that a shareholder is entitled to regardless of whether they are traceable or not. Failure to distribute can have adverse consequences if the untraceable shareholder or their personal representatives are later identified.

The starting point in this situation is to consider the articles of association. A company that has adopted the model articles of association will be required to hold a dividends payment in a separate bank account for 12 years from the date on which the dividend became due for payment.  This extends the default period of six years under the Limitations Act 1980.

A company with bespoke articles of association may have different provisions for dealing with unclaimed dividends. It is permissible, subject to legislation relating to unfair terms, for a company to allow a period shorter than six years.

If, following the expiration of the relevant period, no shareholder has come forward, the dividend may be forfeited.

What should companies do?

1. Minimise the likelihood of untraceable shareholders

Companies should keep records of contact details for shareholders, particularly those shareholders who are not involved with the company on a day to day basis, and to contact shareholders on a semi-regular (annually or biannually) basis.  It would be advisable to ensure records include several different means for contacting the shareholder and not just a home address, for example, telephone numbers and email addresses.

2. Take reasonable steps to trace any missing shareholders

In the event that none of the contact details held by a company in relation to a shareholder are current or valid, companies can try other means to trace them.  Other methods may include placing notices in newspapers, undertaking a social media search, or where the costs would not be disproportionate, employing tracing agents.  Companies should keep records of their attempts to trace any shareholder.

3. Include ‘fallback’ provisions in articles of association

It may be wise to include a share buyback provision in the articles of association, allowing a company to purchase shares held by untraceable shareholders back and cancel them. The money paid for the shares must be placed into an additional separate bank account and kept for the requisite period of time, within which the entitled shareholder may claim the money.

If your company has or may have untraceable shareholders, our Corporate team can assist. Please contact us by phone 0113 207 0000.