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Review Your SQE 1 Practice Records

Examination Timing: 00H00M01S

A shareholder of a private limited company sells his 15% shareholding to a buyer for whom you act in the transaction. The seller executes the stock transfer form. You send the form to HMRC with a cheque for the stamp duty tax due, and receive it back stamped. You then send the stock transfer form to the company. The company issues a share certificate, and a few days later updates its register of members. Two weeks later, the company sends an annual confirmation statement to Companies House, which is recorded by the Registrar several days later. 

At what point did the buyer become a member of the company?

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According to section 112 of the Companies Act 2006, a person becomes a member of a company when their name is entered into the company's register of members. While a share certificate is prima facie evidence of ownership, legal title to the shares is not transferred until the buyer's name is recorded in the register of members. The process involves several steps, including the execution of the stock transfer form, payment of stamp duty, issuance of a share certificate, and finally, updating the register of members. Therefore, the buyer becomes a member of the company at the point when the company updates its register of members, as this is the conclusive legal proof of membership. 

Key Point: The legal ownership of shares and membership in a company is established when the transferee's name is entered into the company's register of members, regardless of the issuance of share certificates or filing of confirmation statements.

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