I’m not sure what the legalities are, but it seems wrong to me that a member’s shares could be cancelled (forfeited) without them signing some kind of acknowledgement/consent.
CAS360 does not provide this kind of document so I always draft one myself. Maybe it’s not required but it seems like best practice to me, particularly if the business owners are unrelated.
I’m interested to hear others’ thoughts about this. Is it a document that should be included in CAS360?
Further to this comment, funnily enough, today I have been made aware of an issue where a share cancellation has been lodged with ASIC and now the shareholder is complaining that they never consented to the cancellation! So I’m going to send this to BGL via feedback.
Thank you for the feedback
We have checked the practice guides that we follow for our documentation, and there is no document for member’s consent for share cancellations.
However, I have added this to the development list, so that we can add this, and allow users to turn this option on when preparing a cancellation document pack.
Bit late to the party with this one, but would this kind of thing fall under the oft neglected practice of drawing up a Shareholders Agreement at the outset of business venture, particularly if it is a partnership or business otherwise not involving related parties?
Absolutely agree with you @Anne.Wright that a ‘best practice’ would be to at least inform the client of the action of the company and its directors in processing the cancellation of their shares, but have not come across this from a legal standpoint at any time.
It would seem there are a lot of protections in the Corps Act for Officeholders, and Shareholders to a degree, but since this is a perfectly legal process undertaken by the officers under their appointed powers (dependent perhaps on their Constitution?), one wonders how the rights of shareholders in the ownership of their shares are upheld.
Forfeitures differ from most cancellations because they are designed to be unilateral, even though they use the same form 484 as bilateral cancellations to report it to ASIC.
The forfeiture provisions are designed to provide a means for companies to cancel shareholdings for which they have not received payment. These are usually subject to Call on Shares requirements in the company constitution (i.e. demand payment, wait a set period, cancel if no response).
As shares are property, they are very difficult to get rid of unilaterally. When a member is issued unpaid or partially paid shares and then disappears, the company is left with little recourse to get them off the books outside of a forfeiture.
As the nature of a forfeiture is such that the company is forced to cancel the shares unilaterally, this is why there is no agreement or consent from the shareholder. If there were consent, it wouldn’t be a forfeiture so much as it would be a redemption or some other similar transaction.
If someone lodged a share cancellation with ASIC using the forfeiture tickbox and they lied about it then the shareholder can take legal action. This scenario exists outside of the proper use for a forfeiture.
Edit: missed half a sentence, added it in.