Further flatowner now wanting to join management company others set up

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    Further flatowner now wanting to join management company others set up

    I own a flat in a block of eight. 6 flat owners extended leases in 2016. Freeholder is local authority and when the Victorian building was converted to residential flats in 1989 the developer became the Intemediate Landlord. When he died in 2015 his sons inherited the intermediate lease and were keen to offload it so offered it to the flatowners free of charge and we 6 paid the fees incurred between us to set up a limited company, with one share issued per flat. So the company was set up at the same time, and by the same solicitors, as our leases were statutorily extended. We agreed that the mem and arts should state that a flatowner who sells his/her property should automaically transfer his/her share for a nominal amount, £1. Now one of the two non participants would like to join the management company and I'm not sure where we stand as in essence there is no share transfer taking place. The mem and arts does not include any info re further participants - only about transferring shares on sale of dwelling, or someone inheriting a property. In my view the nominal sum only applies to transfers and if someone now want to become part of the limited company they should pay their proportion of the set up fees, legal fees etc. It does not make sense that we forked out all the costs and had all the aggravation, just for one of the dawdlers to come in at no cost at all. One of the other participating flatowners thinks asking new participant to contribute is illegal, but the managing agent who is company secretary seems to think we should do this. Also, the new participant is particularly obstructive and objectionable and I would prefer to say no to his request. Am I allowed to do this or does he have an automatic right to join. The mem and arts states decisions should be unanimous. Is there anyone able to help - any advice would be much appreciated.

    I think this would normally require a special resolution, if your articles require 100% votes, I would consider changing them, as anyone can veto a decision, but I would assume that you would have to call a general meeting, with proper notice of the intention to increase the share capital, and get a 100% vote of those attending.

    The usual interesting question would be whether they should pay more than the nominal fee, because they didn't contribute to the original costs.

    I've assumed that only enough shares are allocated to cover the original members.


      Thank you for responding. I've returned to the mem and arts (I have no expertise in this area) and can now see that it has to be a majority decision, not unanimous. ie
      "The general rule about decision making by directors is that any decision of the directors must be taken as a majority decision at a meeting or as a directors' written resolution in accordance with these articles or otherwise as a unanimous decision taken in accordance with these Articles.

      From this I assume the company secretary would put forward a directors resolution at a director's request by giving notice in writing to each of the other directors. A majority would be needed for the resolution to be passed. It does say the Chairman does not have the casting vote so I don't know what happens in this circumstance. - or is that just if a physical meeting is called. Do you know what happens if there is a draw.

      Each flatowner has only one share - presumably because that one share automatically transfers to any new flatowner when the flat is sold. There are no spare shares floating around for us to sell or give away so I'm not sure what the process is of increasing the number of shareholders by one. It's all very confusing but the managing agent who is company secretary seems to have even less of a grip on the contents of the mem and arts, which is why I have sought advice from this forum.

      Also, do you have an answer to your interesting question - personally I think he should pay the same as we paid in legal fees and the money perhaps should stay within the company as it's not that much but is at least a token. Help .........


        On a quick scan of the Act, and other sources, for a simple company, the directors may be able to allocate shares without much formality. In more complex cases, it seems that only an ordinary resolution is required to authorise shares, but there is a time limit that must be applied and may not be more than five years, before the authorisation has to be refreshed.



        The issue to watch out for if you charge for the shares is that there may be tax implications if you distribute the money to the other shareholders.

        Unless the lease or the articles require, you can refuse membership.

        Having a problem member with a 100% majority requirement would be a recipe for disaster, as the company could en up unable to do anything.


          Unless the articles make every member a director, the new member could only influence general meetings, unless they can convince enough other members to make him a director.

          The point of having real meetings is to try and reach a consensus, so the directors should be trying to find compromises, rather than sticking to a fixed line. Although it seems you can have written resolutions of directors on a majority, such written resolutions should really only be used for non-contentious issues, or to formalise an email discussion or telephone conference.


            Thank you . So my understanding is then that we can allocate shares without much formality. He can be a shareholder but that does not automatically make him a director - we would have to agree to that. If we charge him £250 fees and leave the money in the company, would there still be a tax implication (I think a fee even that small may put him off). What is the point of him being a shareholder and say, not a director, as he won't have any say in anything surely. It is much better not to have him as anything as life could become very difficult. I don't know whether the managing agent has persuaded him to join for some reason. It doesn't mention further share allocation in the M&A it only says:

            "Further issue of shares - pre-emption rights
            In accordance with Section 567(1) of the CA2006 sections 561 and 562 of the CA2006 shall not apply to an allotment of equity securities (as defined in section 560(1) of the CA 2006) made by the company as long as such equity securities are being issued to a dwellingholder or a person who is about to become a dwellingholder"
            Do you know what this means?

            Thanks again for you help - I'm very grateful.


              The reference to the Companies Act is saying that you don't have to offer shares at £250 each to the existing members when offering them to the new one.

              Having 8 directors would probably be considered too many, already. The optimum is about 5. Too few and you won't get a good debate. Too many and they are likely to break into factions.

              As a member, in a company with less than 21 shares, he can force a general meeting of the members. He can vote and speak in such meetings, however they were called.


                Thank you again. So in effect, the process could be, say:

                Get a majority of directors (only 5 votes/5 directors as one owns 2 flats and has 2 shares but only 1 vote) to agree to him becoming a shareholder.
                Not necessary for him to be a director. What if he asks to be a director - can he force the others to vote on it.
                Probably better not to charge him for share to avoid any tax implications and it would only be for a share of the fees the others paid for jointly which would amount to around £250. Is it not possible to give the share free but charge £250 admin costs - just to get something from him.

                One of the directors thinks for some reason that by becoming a shareholder he will not have to pay his ground rent. I have explained that the only way he can stop paying ground rent is by extending his lease - as the 5 of us did by the statutory route. Am I correct in thinking this.

                If he becomes a shareholder do we have to involve the Freeholder for any reason.

                If a flat is sold and the share is automatically transferred to the new owner does that new owner automatically become a director if predecessor was a director or does it have to be voted on.

                As you can see I know nothing about company law and unfortunately we don't seem to have anyone amongst us that does know much, but are happy to offer "advice" without checking it out. In effect I'm just trying to make sure we're following the correct procedures.

                I have taken up a lot of your time so will try and make this my last email and hope you are able to respond. My thanks again.


                  The no ground rent thing seems to be the common fallacy that share of the freehold allows you to ignore the lease. This general point comes up in another recent thread.

                  What happens on a sale depends on the articles of the company. In a normal company, a director who sells their shares will remain a director. Although we are actually limited by guarantee, a director who sells their flat is required, by the articles, to cease to be a director, but any replacement would have to be explicitly appointed. Some RMC have clauses that automatically make members directors, although, as becoming a director requires consent and is dependent on the person not being disqualified, I'm not sure what happens when that is frustrated.


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