A company’s lien on its shares

A lien on shares is a right, given by the company’s articles, to hold a member’s shares as security for money owed to the company and, if it is not paid after notice, to sell them. Under Table A and the public company model articles the lien covers only partly paid shares and the unpaid amount on them. Private companies on the model articles have no lien at all, and a public company cannot take a lien on its fully paid shares except in the ordinary course of a lending or credit business.

What is a company’s lien on its shares?

A lien in this sense is a form of security. The company does not own the shares, but its claim attaches to them, ranks ahead of others with an interest in them, and can be enforced by sale. The right comes from the articles, which form a contract between the company and its members, rather than from a separate charge document. It is different from the lien an accountant may claim over a client’s papers for unpaid fees, which is a possessory right over documents; see an accountant’s lien over client records.

In practice a lien only bites where shares are partly paid, so the holder still owes some of the nominal value or premium. Once the shares are fully paid, a lien in the standard forms of articles falls away.

Does my company have a lien?

Articles	Lien	Scope
Model articles for private companies (Schedule 1, SI 2008/3229)	None	Article 21 requires shares other than subscriber shares to be fully paid on issue
Model articles for public companies (Schedule 3, SI 2008/3229)	Article 52	Every partly paid share, for unpaid nominal value and premium, whether or not a call has been made
Table A 1985	Regulation 8	Every share that is not fully paid, for money payable at a fixed time or called in respect of that share

Bespoke articles can go further. Section 670 of the Companies Act 2006, which restricts liens, applies only to public companies, so a private company’s articles may set a wider lien, for example over fully paid shares or for other debts a member owes the company. Whether such a clause exists, and what it covers, is a matter of reading the articles. See articles of association and, for older companies, Table A articles.

What does the lien cover?

Under Table A regulation 8, the company has “a first and paramount lien” on every share that is not fully paid, for all money (whether presently payable or not) payable at a fixed time or called in respect of that share. The lien “shall extend to any amount payable in respect of it”, and the directors may declare any share wholly or partly exempt.

Article 52 of the public company model articles is more explicit. The lien covers any unpaid part of the share’s nominal value and of any premium, payable now or in the future, whether or not a call notice has been sent. It takes priority over any third party’s interest in the share and extends to any dividend or other money payable by the company on that share and, if the share is sold to enforce the lien, the sale proceeds. The directors may decide that a share is not to be subject to the lien, wholly or in part.

The public company model articles also give a quicker remedy than a sale. Article 73 lets the directors, where a share is subject to the lien and they are entitled to issue a lien enforcement notice, deduct the sum owed on that share from any dividend or other sum payable on it instead. The money deducted must be applied to the sums payable on the share, and the company must tell the recipient in writing about the deduction, any resulting non payment and how the money was applied. Table A has no equivalent clause, although regulation 104 means that, unless share rights say otherwise, dividends are paid according to the amounts paid up on the shares, so a partly paid share earns proportionately less.

How does the company enforce the lien?

Enforcement is by sale, and the articles set the steps. Under article 53 of the public company model articles:

1. A lien enforcement notice may only be given for a share subject to the lien where a sum is payable and the due date has passed.
2. The notice must specify the share, require payment within 14 days, be addressed to the holder or to a person entitled because of the holder’s death, bankruptcy or otherwise, and state that the company intends to sell if the notice is not complied with.
3. If the notice is not complied with, the company may sell the share in whatever manner the directors decide, and the directors may authorise someone to sign the transfer to the buyer.
4. The net proceeds, after costs of sale and enforcement, go first to the sum payable at the date of the notice. The balance goes to the person entitled to the shares, but only once the certificate is surrendered or an indemnity is given for a lost certificate, and subject to a continuing lien for sums falling due after the notice.

Table A regulations 9 to 11 work in the same way, with fourteen clear days’ notice demanding payment and warning that the shares may be sold. A statutory declaration by a director or the company secretary that the share was sold to satisfy the lien is conclusive evidence of that fact (article 53(5)), and the buyer’s title is not affected by irregularities in the process.

How does a lien affect share transfers?

A lien also gives the directors leverage on transfers. Table A regulation 24 lets the directors refuse to register a transfer of a share on which the company has a lien, and of a share that is not fully paid to a person they do not approve. Under the public company model articles, article 63(5) lets the directors refuse to register a transfer of a certificated share that is not fully paid.

Any refusal must follow section 771. The company must either register the transfer or give the transferee notice of refusal with reasons as soon as practicable and in any event within two months after the transfer is lodged. See directors refusing a share transfer.

What are the limits for public companies?

Section 670 says a lien or other charge of a public company on its own shares, whether taken expressly or otherwise, is void except as the section permits. The permitted cases are:

• for any company, a charge on shares that are not fully paid, for an amount payable in respect of those shares;
• for a company whose ordinary business includes lending money, or consists of providing credit or hire purchase, a charge on fully or partly paid shares that arises from a transaction in the ordinary course of that business;
• for a company that converted from private to public, a charge that already existed immediately before it applied to be registered as public.

So a trading plc cannot have a lien over its fully paid shares for, say, a loan it made to a director. Any such clause in its articles is void to that extent.

Worked example

Illustration only. A company’s articles follow the public company model articles. A shareholder holds 2,000 shares of 1 pound each, paid 0.50 pounds per share, so 1,000 pounds is unpaid. The directors call the full 1,000 pounds and the shareholder does not pay by the due date.

• A dividend of 300 pounds then becomes payable on those shares. Under article 73 the directors deduct the 300 pounds, apply it to the unpaid call and write to the shareholder explaining the deduction. 700 pounds is still owed.
• The directors serve a lien enforcement notice under article 53 requiring the 700 pounds within 14 days and stating that the shares will otherwise be sold. It is not complied with.
• The shares are sold to another member for 1,800 pounds. After costs of 100 pounds, 700 pounds clears the debt and the remaining 1,000 pounds is paid to the former holder once the certificate is surrendered or an indemnity is given.

Interest on the late call under article 57 has been ignored to keep the figures simple.

What mistakes come up most often?

• Assuming there is a lien: companies on the private model articles have none, and a lien cannot be created by board resolution alone.
• Overreaching in a plc: a lien over fully paid shares outside a lending business is void under section 670.
• Selling without proper notice: the notice must meet the article’s content and timing rules, including clear days under Table A.
• Ignoring transmission: if the holder has died or become bankrupt, the notice goes to the person entitled to the shares. See transmission of shares on death.
• Confusing lien and forfeiture: a lien sale leaves the former holder entitled to any surplus, while forfeiture under the articles works differently. See forfeiture and surrender of shares and partly paid shares.

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Related Accountapedia entries

• Who owns the records: accountants’ lien and client papers
• Business relief on shares in a holding company
• Private companies limited by shares
• Can a child own shares in a company
• Transferring shares in a private company

Sources

• legislation.gov.uk: SI 2008/3229, schedule 1
• legislation.gov.uk: SI 2008/3229, schedule 3
• legislation.gov.uk: SI 1985/805
• legislation.gov.uk: Act 2006 c. 46, section 771
• legislation.gov.uk: Act 2006 c. 46, section 670

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.