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Restrictions of membership - Coggle Diagram
Restrictions of membership
As long as there is no provision to the contrary in the Articles, any legal person may hold shares in a company
CA2006 126 prohibits companies from recognising trusts, whether express, constructive or implied, over their shares. Accordingly holdings of shares cannot be registered in the name of a trust or settlement but must be held in the name of the trustees
Unless a subsidiary company is acting only as personal representative or trustee without having any beneficial interest in the shares or acting as an authorised dealer in securities, a subsidiary company is not permitted to be a member of its holding company (CA 2006. S136)
CA2006 s.139 makes provisions to enable a company's subsidiary company to act as trustee for a group employee share scheme or pension scheme.
There is no prohibition on the holding of shares by a subsidiary in its holding company if it held shares in that company before it became its holdings company. The subsidiary is not permitted to vote at meetings of the holding company (CA2006 s.137)
It would not be lawful for any further shares in the holding company to be allowed to such a subsidiary, a situation that could arise if the holding company undertook a rights issue. The allotment and issue of fully paid shares by way of a capitalisation of reserves is however permitted
What is a legal person?
Only legal persons may become a member of a company
A legal person is any natural person or an incorporated entity with legal capacity
Examples without legal capacity
English partnerships (NOT SCOTTISH PARTNERSHIPS)
Sole traders
Unincorporated clubs and associations
If an entity without legal capacity is entered in the register of members a court order to rectify the register will be required, this is due to the inability of the entity to voluntarily transfer the shares into the correct name as the entity, having no legal capacity, has no power or authority to give the necessary instructions
If these bodies wish to acquire any shares they should be registered in the name of one or more of the painters, business owners or managers on behalf of the body
Similarly, the holder of an office should not be accepted as a member in that capacity unless it is an office created by statute, such as the Treasury Solicitor or the Accountant General
Restrictions in the Articles
The Articles of some companies exclude certain categories of person from membership eg persons who not able to give a declaration of British or EU nationality may be prohibited from being registered as a member of an airline as these usually require a minimum level of ownership by nationals of a particuarly country or trading block such as the EU
Although historically many professionals traded through partnerships, over recent years there has been an increasing move away from partnerships to LLPs and limited companies. Where a limited company is used, the Articles may require all or a minimum percentage of the members to hold a particular professional qualification
Shares in a company may be held by a number of persons in a joint account. However some Articles limit the number of persons who may be so registered. in the case of a listed company, the maximum number of joint holdings is not permitted to be fewer than four