Whether or not you can transfer shares to your child is an interesting question, as naturally you may assume the answer is no. However, Weronika Husejko explains why you can transfer shares to a minor and looks at matters you should take into consideration if you do.
Whilst at first you may assume that you cannot transfer shares to your child if they are under the age of 18 – at least I did, there is no statutory restriction on shares being held by a minor in a company that is incorporated in England and Wales.
There are however a variety of matters to take into consideration when determining whether you can or should transfer the shares to your child. For example, there may be restrictions in the company’s articles of association that prevent a minor from holding shares. The same could apply to a shareholder’s agreement if there is one in place.
In reality, it may be impractical for a child that is under 18 to hold shares in a company. This is for a number of reasons, including the fact that any future transfer of shares during the child’s minority would be problematic given the legal limits on their capacity to contract.
Another point of note when considering this topic is that when a child holds shares in a company, they may have the right to repudiate their shareholding in the company potentially even some time after turning 18. Consequently, upon ceasing to hold shares the child would no longer be responsible for any liabilities in relation to the shares. It may also result in the title to the shares reverting to the previous shareholder.
Any individual must also agree to become a member of a company under section 112 of the Companies Act 2006, however, there is a question mark over how a child could provide sufficient agreement and therefore comply with this legal requirement.
A potentially more practical way for your child to have an interest in shares involves the child being the beneficial owner of the shares, and an adult e.g. you as their parent, being the legal owner of the shares. This would allow the adult to exercise various rights on the child’s behalf, including voting, receiving dividends, and signing any documents required. This is far more common in our experience. It would also make it easier for the shares to be transferred during the child’s minority, if need be, as the adult/legal owner can sign the stock transfer form.
In summary therefore, you may be able to transfer shares to your child that is under 18, however, whether it is practical to do so, is another matter.
If you would like any more information on transferring shares, speak with our award winning Corporate Law Team at [email protected]
