A corporate shareholder is a business entity that owns shares in another limited company. The term ‘corporate shareholder’ may refer to another limited company, a group of companies, a general partnership or limited liability partnership, a non-profit organisation or charity, a trust, or a community interest company (CIC). Essentially, any non-human legal entity that is capable of owning shares can be a corporate shareholder.
The rights of a corporate shareholder are exactly the same as the rights of a non-corporate (natural person) shareholder. They are defined in the prescribed particulars attached to their shares, but most shares provide:
- the right to vote at general meetings
- the right to receive a portion of business profits as dividends
- the right to receive capital contribution (for example, when the business is wound up)
Like all shareholders (aka ‘members’), corporate shareholders enjoy limited liability for the company’s debts. As a result, they have to pay the value of their shares when the company asks them to do so. That is the extent of their financial responsibility toward the business.
Advantages and disadvantages of a corporate shareholder
Having a corporate shareholder that is also an external investor can be advantageous. Particularly for a new company that requires start-up capital, the stability of an established business, or specific knowledge and expertise to create brand value and promote themselves successfully.
Being backed by a corporate shareholder investor might make it easier to access favourable rates and payment terms from suppliers and manufacturers. You may also be able to attract more customers and keep ahead of the competition.
On the other hand, it may entail a reduced percentage of ownership and control over the way the business is managed. Other shareholders, particularly smaller minority ones, may become dissatisfied as a result. This is when a shareholders’ agreement is essential.
It is important to think carefully about the level of control you want any corporate shareholder to have. Bear in mind, if they own more than 50% of the issued shares in another limited company, the corporate shareholder becomes the parent company because they hold the majority of ownership and control in the ‘subsidiary’.
What is a corporate representative?
A corporate shareholder has to appoint a corporate representative to attend general meetings, exercise voting rights, sign relevant documentation (such as members’ resolutions), and represent their needs. This role is usually held by a director of the corporation that owns the shares.
The representative will conduct themselves as if they were the shareholder, but they can only act in accordance with the powers granted to them by the corporate shareholder. In most cases, they have complete freedom to represent the corporate shareholder in any way they see fit.
Some corporate shareholders appoint different representatives for different shares, or different classes of shares. This often happens if each director of the corporate entity wants equal say in the way their company is represented as a shareholder.
How to add a corporate shareholder
Corporate shareholders can be added during or after incorporation in the same way as natural shareholders. There are two options available to you:
- Shares can issued to the corporate body during the company formation process. The corporate body is then registered as a member of the company. Their details are stated on the memorandum of association and added to the central public register of companies at Companies House.
- Shares can be transferred to the corporate body after incorporation. This can be achieved by selling existing shares using a stock transfer form, or by creating and selling new shares using the Return of Allotment (Companies House form SH01).
A share certificate should be issued to the new corporate member. Their registered name and official address should be recorded in your register of members. You should also provide details of the corporate member and their shareholdings when you file your next Confirmation Statement (formerly called an ‘Annual Return’) at Companies House.