Limit Spouse voting rights

Original Post:

D

DDT

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Oct 2, 2024
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  • #1
    Hello Forum

    We are a company with 3 directors, for tax avoidance we are thinking of making our wife’s joint shareholders. To follow the HMRC rules your spouse has to have voting rights. Can you place conditions on what resolutions they can vote on? For example, on the sale of the company. Would the HMRC see this as a restriction which would be against the rules?
     
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    UK Contractor Accountant

    UK Contractor Accountant

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  • #2
    Do you mean "joint" shareholders or equal shareholders?

    As per section 286 of the Companies Act 2006, only the ‘senior holder’ of a joint share has the right to vote at general meetings, appoint a proxy shareholder, and sign members’ written resolutions.

    The senior holder is the person whose name is first listed in the register of members, before the names of the other co-owners of the share.
     
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    UK Contractor Accountant

    UK Contractor Accountant

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  • #4
    I think you need to look at setting up an Alphabet Share structure

    Alphabet shares are shares of different classes (often termed “A shares”, “B shares”, “C Shares” etc), each having different rights with respect to dividends.

    They are often used to enable a company to pay dividends at different rates per share to individual shareholders. They are also used in family companies and joint ventures and other situations where particular rights (e.g. to appoint a director) are given to specific shareholders.

    Its the settlement legislation that you need to worry about. The relevant tax legislation (ITTOIA 2005, Pt 5, Ch 5) covers income derived from a settlement, and defines a settlement widely as including ‘any disposition, trust, covenant, agreement, arrangement or transfer of assets’ (s 620).

    Within owner managed companies a ‘settlement’ situation may apply where an individual enters into an ‘arrangement’ of diverting income from one to another, resulting in a tax advantage.

    These anti-avoidance provisions are therefore designed to prevent a person diverting their income to obtain a tax advantage.

    Tax appropriate tax advice before embarking on the share restructuring.
     
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    Bobbo

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  • #8
    I'm afraid that does not answer the question. Dividend right and voting rights function independently of each other. It is perfectly possible for different classes shares to have dividend and voting rights, dividend rights but no voting rights, voting rights but no dividend rights, and neither dividend nor voting rights.

    You also reused the term "joint shareholder" - you need to be very clear about whether you mean the shares you currently hold become jointly owned by you and your wife or whether you mean half of your shareholding is transferred to your wife. These are not the same thing.

    If this does not make a lot of sense to you, some research is needed.
     
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    DDT

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  • #9
    Bobbo said:
    I'm afraid that does not answer the question. Dividend right and voting rights function independently of each other. It is perfectly possible for different classes shares to have dividend and voting rights, dividend rights but no voting rights, voting rights but no dividend rights, and neither dividend nor voting rights.

    You also reused the term "joint shareholder" - you need to be very clear about whether you mean the shares you currently hold become jointly owned by you and your wife or whether you mean half of your shareholding is transferred to your wife. These are not the same thing.

    If this does not make a lot of sense to you, some research is needed.
    Click to expand...
    I would be doing the latter, splitting the shares I have between myself and my wife.
     
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    fisicx

    fisicx

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  • #10
    DDT said:
    I would be doing the latter, splitting the shares I have between myself and my wife.
    Click to expand...
    Do you trust your wife? If so does it really matter if she can vote on things at the AGM?

    It doesn’t affect how you run the business as that’s a director responsibility not a shareholder responsibility.
     
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    D

    DDT

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  • #11
    fisicx said:
    Do you trust your wife? If so does it really matter if she can vote on things at the AGM?

    It doesn’t affect how you run the business as that’s a director responsibility not a shareholder responsibility.
    Click to expand...
    Thank you for your reply. In my original post I said we are 3 directors wanting to split our shares with our wife's. I might trust my wife but I don't know the other directors wife's that well.
    I may be wrong but I think the shareholders can instruct the directors what direction the company should follow
     
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    fisicx

    fisicx

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  • #12
    Shareholders can do all sorts of things. It all depends on your articles of association, the types of shares and the agenda at the AGM.

    You seem to be mixing directors with shareholders. They aren’t connected. You can sell your shares to whoever you like (including your wife). This has no relevance to your role as a director.

    If you want to reduce your personal tax sell all your shares to your wife. She will get all the dividends and you get nothing.
     
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    UK Contractor Accountant

    UK Contractor Accountant

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  • #13
    DDT said:
    Thank you for your reply. In my original post I said we are 3 directors wanting to split our shares with our wife's. I might trust my wife but I don't know the other directors wife's that well.
    I may be wrong but I think the shareholders can instruct the directors what direction the company should follow
    Click to expand...
    refer to my post No 4 above

    need to split (gift/sell) the shares and then re-designate the wife's shares as A Class & B Class Shares with appropriate rights to dividends, voting & distribution on winding up.
     
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    DDT

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  • #14
    fisicx said:
    Shareholders can do all sorts of things. It all depends on your articles of association, the types of shares and the agenda at the AGM.

    You seem to be mixing directors with shareholders. They aren’t connected. You can sell your shares to whoever you like (including your wife). This has no relevance to your role as a director.

    If you want to reduce your personal tax sell all your shares to your wife. She will get all the dividends and you get nothing.
    Click to expand...
     
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    fisicx

    fisicx

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  • #16
    DDT said:
    I think I may not of said that we 3 directors are also the shareholders of the company.
    Click to expand...
    Yes. But they are not the same. One is not dependant on the other.
     
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    DDT

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  • #17
    I would like to thank everyone for their help and advice. But what I thought was a simple question

    " if I split my company shares with my wife and share my dividend to lower my taxable income for tax avoidance, to follow the HMRC rules I have to give my wife shares with voting rights, can I limit these voting rights?"

    turned out not to be such a simple question.

    Once again thank you for all your input
     
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