Transfer of membership in a company limited by guarantee

On foot of a recent query to the committee, consideration was given to the issues that arise when a company limited by guarantee is used for the purposes of holding legal title to property held in a multi-unit property development and, in particular, the question of how membership in the company should be transferred.

In the particular query raised, all of the units were commercial units, and so the development was neither a ‘multi-unit development’ nor a ‘mixed-use multi-unit development’ for the purposes of the Multi-Unit Developments Act 2011. However, in any circumstances where a solicitor is acting for the vendor or purchaser of a residential unit in a multi-unit development to which the act applies, they should be aware of section 8(1) of the act, which provides for transmission of membership to the purchaser (that is, transfer of membership in the relevant company by operation of law).

In the company in question, Table C of the First Schedule of the Companies Act 1963 applied, without amendment. That being the case, the articles of association provided little by way of instruction as to how to deal with the transfer of ownership of one or all of the units to a new member or members, as Table C simply refers to the members of the company being the subscribers and “such other persons as the directors shall admit to membership”.

Ideally, the articles of association would have set out that each member (that is, property owner) would be issued with a certificate of membership of the company on acquiring the relevant unit of property. The articles would specify that on the transfer of the property owned by a member, the member would tender their certificate of membership to the directors in order to terminate their membership of the company. Furthermore the articles would specify that a new member would notify the directors when the purchase of a property in the development had completed and the directors would arrange for the issue of a new certificate of membership to the purchaser and for the register of members to be written up following receipt of the appropriate notifications.

In circumstances where there is a lack of clarity in the articles of association, such as in the facts presented to the committee, one way to proceed would be for the members of the company limited by guarantee to approve (by written resolution or at a general meeting) an amended set of articles of association in advance of completion of the proposed transfer or property. The amended set of articles of association should set out clearly the process to be followed as regards membership when property in the development is being transferred. By following the procedure, as set out in the new articles of association, the purchaser of property in the development will then be able to establish with certainty that they have become a member in the company limited by guarantee, and likewise the vendor will have taken the necessary steps to terminate his membership.