The new model articles for private companies highlight a change in the law which needs to be carefully addressed by directors of private companies when considering share transfers.
The 1985 Table contained the following provision in article 24: “The directors may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve”. This was inappropriate for private companies for at least three reasons. First, private companies rarely had partly paid shares. Secondly, in so far as this article was relevant to a private company it was essentially a credit control measure. The directors might be happy that A should owe money to the company but considerably less than happy that B should owe money. Thus when A tried to transfer his partly paid shares to B, the company could refuse to register the transfer to B. Thirdly, most private companies would extend this article to cover fully paid shares so as to allow the board to exclude undesirables from membership generally. A typical special article might read: “The directors may, at their absolute discretion and without giving any reason therefor refuse to register the transfer of any share to a person of whom they do not approve”.