Q: My business partner and I run a successful company together. We are both directors and each have a 50% shareholding. We want to protect our shares should the unexpected happen and one of us dies. How can we do this?
A: The death of a shareholder can create significant problems for a company like yours, but there are steps you can take to enable a surviving shareholder to retain control of the company should one of you die.
You and your business partner should make sure that your shareholdings are protected in your Wills. Each Will should provide that in the event of death, the deceased shareholder’s personal representatives will give the surviving shareholder first refusal to buy the shares.
You might also want to consider obtaining life insurance policies, the proceeds of which would be used by the surviving shareholder to buy the shares.
You will need to bear in mind that if the company continues to grow and be successful, the life insurance premiums may become prohibitively expensive and the value of the pay out may not match the value of the deceased shareholder’s shares. You could put in place a shareholders’ agreement which is a private contract entered into by the shareholders of a company. It sets out how ownership of a company is structured and the way decisions are to be made by the shareholders and the directors.
The shareholders’ agreement could be drafted to provide that if a shareholder dies, their personal representatives will be forced to sell the shares to the surviving shareholder for the value of the insurance policy. We refer to this as a ‘put and call’ option. Of course, looking at it from the perspective of the family of the deceased shareholder – they could be forced to sell shares which might be worth much more in the future if the company continues to grow.
Therefore another option is for the company, rather than the surviving shareholder to buy back the shares from the personal representatives. Company law does include a number of hoops that the company has to jump through before this can be done, but as long as the company has the cash to buy back the shares (or is able to borrow it) this can work quite well.
Other, more drastic alternatives include putting the company into liquidation on the death of a shareholder or selling it.
Q: What is the Consumer Rights Act 2015?
A: The Consumer Rights Act 2015 (CRA) is the biggest overhaul of consumer protection legislation in 30 years. It aims to consolidate and reform the consumer law in the UK, which previously has been spread throughout many different pieces of legislation.
Q: When does it take effect?
A: The main provisions of the CRA came into force on 1 October 2015. This means that it will affect all purchases made from this date.
The CRA contains provisions governing transport service contracts, such as rail, air and sea services but these do not come into force until 1 April 2016.
Q: Why is the law being reformed?
The existing law on consumer rights was considered confusing for both businesses and consumers alike. The law was particularly burdensome on businesses and the reforms aim to make it easier for businesses to comply with, and in turn easier for consumers to obtain redress. Additionally, the existing law had not kept pace with technological developments such as the increasing marketplace for digital content.
Q: What are the big changes?
The CRA reforms the law in relation to consumer rights and remedies in relation to goods, services and digital content, and unfair terms in consumer contracts and consumer notices.
- Consumers now have a right to reject faulty goods, or those which do not match the seller’s description within 30 days of purchase and receive a full refund. This is more precise than the previous ‘reasonable’ timeframe which was open to interpretation.
- With regards to provision of services, if the service is not provided with reasonable skill and care, the consumer now has a right to ask for repeat performance, and if that cannot be provided within a reasonable time, a reduction in price.
- If consumers order a product on time and it does not arrive by the promised delivery date, they are now entitled to cancel the order and receive a refund.
- There is now requirement for terms and conditions, such as fees and charges, to be prominent and transparent i.e. not buried in small print. It will now be much easier for consumers to challenge these unfair terms and conditions.
Q: What does digital content mean?
Digital content now forms an increasing part of our spending, but was not covered by the previous consumer legislation. Digital content has now been added as a separate category to goods and services under the CRA. If digital content such as music, apps, e-books and online games are faulty, consumers can now request a repair or replacement. If the retailer will not provide this, then consumers can request a refund instead. However, the 30 day limit does not apply to this and there are no time limits on retailers’ responses.
Additionally, if digital content causes any damage to the device it is used on, the consumer has a right for the damage to be repaired and for appropriate compensation.
Q: What if a trader does not comply with the CRA?
There is an Alternative Dispute Resolution procedure which is available to settle disputes between traders and consumers efficiently and in a more cost effective way. With effect from 1 October 2015, traders must also give consumers details of a certified Alternative Dispute Resolution provider. If all else fails, consumers will still be able to pursue the matter in court.
Q. What is a PSC Register?
A. A PSC Register stands for Register of People with Significant Control. From 6 April 2016, UK incorporated companies limited by shares or guarantee, LLPs, unlimited companies and societas europaea need to create and maintain a PSC Register. This new company record has been introduced to increase transparency over who owns and controls UK companies, in order to inform investors and law enforcement agencies. It should be kept at your registered office or at another location notified to Companies House. From 30 June 2016, you are also required to provide information on PSCs to Companies House as part of your annual Confirmation Statement (which will replace the Annual Return). There are criminal sanctions for failure to comply with the new regime.
Q. The share capital of my company is 11,000; I hold 6,500 shares and other shareholders, B has 3,000 shares and C has 1,500 shares. Do we need to be listed in the PSC Register?
- A. Yes, you and shareholder B will need to be listed in the PSC Register, but C may not. You will need to consider who in your company is a Person with Significant Control (PSC) and needs to be identified in the PSC Register. A PSC is a person who:
- holds more than 25% of shares in the company;
- holds more than 25% of voting rights in the company;
- holds the right to appoint or remove the majority of the board of directors;
- has the right to exercise, or actually exercises, significant influence or control over the company; or
- exercises or has the right to exercise significant influence or control over activities of a trust or firm which itself meets one or more of the first four conditions.
You and shareholder B will need to be listed as a PSC. This is because you both hold more than 25% of shares in the company and therefore satisfy condition one; your shareholdings are 59% and 27% respectively. Shareholder C only has 9% of the shares and unless they fall within the other remaining four categories above, will not need to be listed as a PSC.
The PSC Register should be kept up-to-date. For example, if you sell your shares to C and you no longer exercise significant influence or control but C does, you should provide a statutory notice to the company so the company can then update the PSC Register with the date you ceased to be a PSC i.e. when the shares are sold.
Q. What form should the PSC Register take?
A. There is no prescribed format for the PSC Register. However, government guidance available online states the PSC Register should never be blank - it should contain information about PSCs or if this has not yet been ascertained, give an update on the progress of the company’s investigations into identifying them. The PSC Register should contain:
- the PSC’s name;
- service address (and residential address if this is different);
- date of birth;
- date of becoming and ceasing to be a PSC; and
- the nature of the PSC’s control.