Question 1

Share Certificates

Accepted Answer

Q: Talking to Bob Smytherman at last night’s LEASEHOLD Conference he suggested sending a copy of our M&A as we were unclear whether share certificates should be issued to Leaseholders, which we have never done. All new leaseholders receive is a membership certificate for a small charge. FPRA Legal Adviser Nick Roberts replies: I have had a look at the Memorandum and Articles of Association of your company, and would confirm that it is a ‘Company Limited by Guarantee’ rather than a ‘Company Limited by Shares’. It is therefore correct that you do not issue share certificates and indeed it would be misleading for you to do so. The provisions relating to becoming and ceasing to be a member of the company are as set out in Articles 3 to 9 of the Articles of Association and should be followed. You may issue a Certificate of Membership to a member if you wish, and indeed it seems general practice to do so. Both the ‘Company Limited by Shares’ and ‘Company Limited by Guarantee’ models are found with Residents’ Management Companies. The ‘limited by guarantee’ model is in many respects better, because it is easier to avoid the situation – which can arise with companies limited by shares – where a lease is transferred, but the outgoing owner fails to transfer the share to the new owner. With your model, the new owner can apply to be a member of the company, and then the outgoing owner ceases automatically to be a member. With companies limited by shares this would require more elaborate provisions whereby the Directors could compulsorily transfer the share from one to another. The main advantage of having the company limited by shares is often said to be that it is more familiar to the average lay person. [Submitted February 2017]

Question 2

Share Certificates

Accepted Answer

Q: Talking to Bob Smytherman at last night’s LEASEHOLD Conference he suggested sending a copy of our M&A as we were unclear whether share certificates should be issued to Leaseholders, which we have never done. All new leaseholders receive is a membership certificate for a small charge. FPRA Legal Adviser Nick Roberts replies: I have had a look at the Memorandum and Articles of Association of your company, and would confirm that it is a ‘Company Limited by Guarantee’ rather than a ‘Company Limited by Shares’. It is therefore correct that you do not issue share certificates and indeed it would be misleading for you to do so. The provisions relating to becoming and ceasing to be a member of the company are as set out in Articles 3 to 9 of the Articles of Association and should be followed. You may issue a Certificate of Membership to a member if you wish, and indeed it seems general practice to do so. Both the ‘Company Limited by Shares’ and ‘Company Limited by Guarantee’ models are found with Residents’ Management Companies. The ‘limited by guarantee’ model is in many respects better, because it is easier to avoid the situation – which can arise with companies limited by shares – where a lease is transferred, but the outgoing owner fails to transfer the share to the new owner. With your model, the new owner can apply to be a member of the company, and then the outgoing owner ceases automatically to be a member. With companies limited by shares this would require more elaborate provisions whereby the Directors could compulsorily transfer the share from one to another. The main advantage of having the company limited by shares is often said to be that it is more familiar to the average lay person. [Submitted February 2017]

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