A shareholder whose participation ends while the company continues becomes entitled to a settlement share. The statutory calculation uses the previous accounting period’s ordinary financial statements and the ratio of that shareholder’s paid contribution to all paid contributions. This is only a default rule. The memorandum may prescribe another method, such as net business equity, and a different due date; those terms take precedence.
When does the settlement entitlement arise?
If a shareholder’s participation ends while the company continues, through court termination, expulsion, their bankruptcy or failure of the share to pass to an heir, the shareholder or successor acquires a right to a settlement share (Section 61(2) and Section 150). This is the monetary value of their former participation.
What is the statutory calculation?
Unless the memorandum provides otherwise, the amount is determined from the ordinary individual financial statements for the accounting period preceding the one in which participation ended (Section 61(2)). The ratio is the departing shareholder’s paid contribution divided by all shareholders’ paid contributions (Section 150(2)). Payment is monetary and, unless otherwise agreed, falls due three months after approval of the relevant financial statements (Section 61(3)).
Can the memorandum change the calculation?
The statutory rule is only a default. The memorandum can set another calculation, for example by reference to the shareholder’s share of net business equity, often reflecting company value more realistically than a contribution ratio alone. It can also set another due date. A general meeting decision setting a reasonable settlement in accordance with the memorandum is binding. This is where most disputes arise: the shareholder expects market value, while the bare statutory contribution formula may produce a much lower result.
How to prevent a dispute
Resolve the calculation and due date in advance in the memorandum, rather than at separation. We record the arrangement through our memorandum of association service. If the amount is already disputed, we represent you through shareholder dispute resolution. If selling is a better exit, we also consider a business share transfer.
This answer provides general information on the law as at 17 August 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
