Commissioner of Inland Revenue v Crossman

Facts

• Shares in a private company were held by a deceased shareholder whose estate was assessed for estate duty.
• The Articles of Association contained restrictive pre-emption clauses limiting the transferability of shares.
• The Revenue argued shares should be valued at open-market price ignoring restrictions; the executors contended restrictions depressed value.

Issue

1. Whether restrictions on transfer imposed by the Articles of Association affect the value of shares for estate duty purposes, and what constitutes the nature of a "share" in a company.

Held

• The House of Lords held that the value of shares must take into account any restrictions imposed by the Articles. A share is not merely a proportion of the company's net assets but is a bundle of contractual and statutory rights as defined by the memorandum and articles. The restrictions form part of the character of the share itself and must be reflected in any valuation exercise.

Ratio Decidendi

A share in a company is a bundle of rights and obligations defined by the Companies Act and the constitutional documents of the company (Memorandum and Articles of Association). Its value cannot be determined in abstraction from the terms upon which it is held. Any restriction on transferability or other limitation imposed by the Articles is intrinsic to the share and must be considered in determining its worth.