Contents
Back to top
Introduction
This booklet is an
initial guide to quite
a complex subject.
It cannot replace
professional advice.
It:
- explains the
basics of share
capital;
- applies to all
companies incorporated
with share capital,
whether private
or public;
- tells you what
information must
be delivered to
Companies House;
and
- covers the
regulation of:
- authorised
share capital,
allotment
and cancellation
of shares;
- types of
shares, restructuring
share capital
and share
transfers;
- offers made
to the public
in a prospectus.
You
will find the relevant
law in the Companies
Act 1985 (as amended),
the Financial Services
and Markets Act
2000, the Public
Offers of Securities
Regulations 1995,
and in the Listing
Rules of the FSA
(Financial Services
Authority)..
Back to top
CHAPTER
1
Share capital
1. What
is share capital?
When a company is
formed, the person
or people forming
it decide whether
its members' liability
will be limited
by shares. The memorandum
of association (one
of the documents
by which the company
is formed) will
state:
- the amount of
share capital
the company will
have; and
- the division
of the share capital
into shares of
a fixed amount.
The
members must agree
to take some, or
all, of the shares
when the company
is registered. The
memorandum of association
must show the names
of the people who
have agreed to own
shares and the number
of shares each will
own. These people
are called the subscribers.
2. What
is authorised capital?
The amount of share
capital stated in
the memorandum of
association is the
company's 'authorised'
or 'nominal' capital.
3. Is there
a maximum and minimum
share capital?
There is no maximum
to any company's
authorised share
capital and no minimum
share capital for
private limited
companies. However,
a public limited
company must have
an authorised share
capital of at least
£50,000 (and, if
it is trading, issued
capital of £50,000
- see question 5).
4. Can a
company alter its
authorised share
capital?
A company can increase
its authorised share
capital by passing
an ordinary resolution
(unless its articles
of association require
a special or extraordinary
resolution). A copy
of the resolution
- and notice of
the increase on
Form 123 - must
reach Companies
House within 15
days of being passed.
A company can decrease
its authorised share
capital by passing
an ordinary resolution
to cancel shares
which have not been
taken or agreed
to be taken by any
person. Notice of
the cancellation,
on Form 122, must
reach Companies
House within one
month.
For information
about resolutions,
see our booklet,
'Resolutions'.
5. What
is issued capital?
Issued capital is
the value of the
shares issued to
shareholders. This
means the nominal
value of the shares
rather than their
actual worth. The
amount of issued
capital cannot exceed
the amount of the
authorised capital.
A company need not
issue all its capital
at once, but a public
limited company
must have at least
£50,000 of allotted
share capital. Of
this, 25% of the
nominal value of
each share and any
premium must be
paid up before it
can start business
or borrow.
|
Getting
a 'Certificate
to commence
business and
borrow'
If a new company
is incorporated
as a plc,
it must deliver
a statutory
declaration
on Form 117
confirming
that its share
capital is
at least the
statutory
minimum. The
Registrar
will then
issue a certificate
entitling
it to do business
and borrow
- see our
booklet, 'Company
Formation'
for more information. |
A company may increase
its issued capital
by allotting more
shares but only
up to the maximum
allowed by its authorised
capital. Allotments
must only be done
under proper authority
(see question 7).
-
A
public company
may allot shares
to the general
public. Share
offers to the
public are made
in a prospectus.
For more information
on prospectuses,
see chapter
3.
-
A
private company
is normally
restricted to
issuing shares
to its members,
to staff and
their families
and to debenture
holders. However,
by private arrangement,
the company
may issue shares
to anyone it
chooses.
6.
Can a company reduce
its issued capital?
A company cannot
normally reduce
its issued capital
as this is the personal
property of the
shareholders, not
of the company.
However, the following
exceptions apply:
For
more information
about shares and
share transfers,
see chapter
2.
7. What
does the allotment
of shares mean?
'Allotment' is the
process by which
people become members
of a company. Subscribers
agree to take shares
on incorporation
and the shares are
regarded as 'allotted'
to each member on
incorporation.
Later, more people
may be admitted
as members of the
company and be allotted
shares. However,
the directors must
not allot shares
without the authority
of the existing
shareholders. The
authority will either
be stated in the
company's articles
of association or
given to the directors
by resolution passed
at a general meeting
of the company.
8. What
type of resolution
is required to allot
shares?
Any public or private
company with share
capital may give
authority by ordinary
resolution. The
authority must be
for a fixed period
of up to five years.
Any ordinary resolution
giving, varying,
revoking or renewing
an authority to
allot shares must
be delivered to
Companies House
within 15 days of
being passed.
A private company
with share capital
may instead pass
an 'elective resolution',
to give, or renew,
an authority. This
authority can be
for any fixed period,
which may be longer
than five years.
It can also be for
an indefinite period.
An elective resolution
must also be delivered
to Companies House
within 15 days of
being passed.
For more information
about resolutions,
see our booklet
'Resolutions'.
9. Must
the company notify
the Registrar when
an allotment of
shares is made?
Yes. Within one
month of the allotment
of shares, a return
on Form 88(2) must
be delivered to
Companies House.
A return of allotments
must reach Companies
House within one
month of the first
date of allotment.
If shares are allotted
over a period of
time, particularly
in a rights issue
(see question 14),
it is not acceptable
to delay delivery
until all the shares
have been allotted
if this means the
form will be late.
Instead, you should
complete consecutive
forms so that each
of them can be delivered
within one month
of the first allotment
stated on each form.
If the shares are
to be paid for in
cash, you must enter
details of the actual
amount paid (or
due to be paid)
on the form. The
amount will reflect
the nominal value
of the shares and
any premium.
Nominal
value and
share premium
A company's
authorised
share capital
is divided
into shares
of a nominal
value. The
real value
of the shares
may change
over time,
reflecting
what the
company
is worth,
but their
nominal
value remains
the same.
When the
company
sells shares
for more
than their
nominal
value, the
actual sum
paid will
be in two
parts -
the nominal
value and
a share
premium.
The share
premium
must be
recorded
separately
in the company's
books in
a 'share
premium
account'.
|
10. Must
shares be fully
paid-up at the time
of allotment?
No. Payment may
be deferred until
later. However,
shares in a public
company must be
allotted as paid-up
to at least a quarter
of their nominal
value and the whole
of any premium (except
that this does not
apply to shares
allotted under an
employees' share
scheme).
As a general rule,
a company may allot
bonus shares to
members as fully
paid-up. A company
which has funds
available for the
purpose may also
pay up any amounts
unpaid on its shares.
See question 13.
A company's shares
must not be allotted
at a discount.
11. Must
payment for shares
be in cash?
No, it can be in
goods, services,
property, good will,
know-how, or even
shares in another
company. The latter
is often used when
one company takes
over another.
Public companies
are more restricted
in what they may
accept in payment
for shares. Non-cash
payments must be
valued before shares
are allotted. A
copy of the valuation
report must be delivered
to Companies House
with Form 88(2).
Generally shares
may be allotted
for payment:
- wholly for cash;
- partly for cash
and partly for
a non-cash payment;
or
- wholly for a
non-cash payment.
12. Must I
send any more information
if allotments include
non-cash payments?
Yes. Form 88(2) must
show the extent to
which the shares are
to be treated as paid-up.
This must be stated
as a percentage.
Calculating
the extent
to which shares
are paid-up
If an allotment
is partly
for cash and
partly for
a non-cash
payment, then
the extent
to which the
shares are
treated as
paid-up must
include the
cash and non-cash
elements.
For example,
a £1 share
allotted for
50p in cash
and 50p in
services is
still 100%
paid-up. |
Form 88(2) must
also include a brief
description of the
non-cash payment
for which the shares
were allotted (for
example, '100 ordinary
shares of £1 in
XYZ limited'). It
must be accompanied
by the written contract
under which title
of the shares is
constituted. The
Registrar will accept
a certified copy
of the stamped
contract for registration.
If there is no written
contract, a stamped
Form 88(3) must
be delivered to
Companies House
with Form 88(2)
within one month
of the allotment.
Form 88(3) is not
acceptable when
there is a written
contract.
|
Stamp
duty
Acquiring
shares for
a non-cash
payment involves
the transfer
of property,
which may
amount to
a chargeable
transaction
under the
Stamp Act.
The Inland
Revenue must
already have
stamped
the written
contract or
Form 88(3)
before it
is sent to
Companies
House, confirming
that stamp
duty has been
paid or that
none is payable. |
Please note:
The requirement
to stamp the prescribed
particulars of the
contract which a
company must send
to Companies House
has been removed
for contracts entered
into on or after
1 December 2003.
13. What
are bonus shares?
If authorised by
its articles, a
company may transfer
profits to a fund
called its 'capital
redemption reserve'
and use it to issue
'bonus' shares to
the members in proportion
to their existing
holdings. Since
the issue may reduce
the amount of money
available for paying
dividends, the term
'bonus' is not always
appropriate. The
correct term is
'capitalisation
of reserves' but
the terms 'scrip'
or 'scrip issues'
are also used to
describe such shares.
A company can also
use a capitalisation
of distributable
profits to credit
partly paid shares
with further amounts
to make them paid
up.
The allotment of
bonus shares must
be notified to Companies
House on Form 88(2).
In
addition, if a listed
public company issues
bonus shares in
respect of shares
held in treasury,
the company must
notify Companies
House on Form 169(1B).
14. What
are pre-emption
rights?
These are the rights
of existing members
to be offered new
shares on beneficial
terms by the company.
'Pre-emption' rights
give members the
opportunity to accept,
reject or renounce
a share offer in
favour of someone
else before the
company offers new
shares elsewhere.
Note:
pre-emption rights
do not apply to
allotments that
are issued as wholly
or partly paid-up
for a non-cash payment
or shares in an
employee share scheme.
(An employee share
scheme means a scheme
for encouraging
share ownership
by employees, former
employees and their
families.)
The memorandum or
articles of a private
company may exclude
pre-emption rights.
However, a public
company cannot have
such a clause.
For a particular
share issue, the
Companies Act 1985
allows a company
to pass a special
resolution not to
apply pre-emption
rights. This is
known as the 'disapplication
of pre-emption rights'.
The resolution will
apply to the one
issue only; a further
resolution is needed
if similar conditions
were to apply to
another share issue.
A copy of the special
resolution must
be delivered to
Companies House
within 15 days of
being passed.
15. What
happens if a person
refuses to pay for
shares?
A member is liable
to pay up the nominal
value of each of
his shares and the
amount owing to
the company is a
debt which can be
'called up'.
If a member refuses
to pay all or any
call on a share,
the company may
use forfeiture proceedings
if permitted by
its articles. A
typical procedure
is set out in paragraphs
18-22 of Table A
of The Companies
(Tables A to F)
Regulations 1985
(if alternative
provisions have
not been adopted).
As these proceedings
are of a penal nature
the regulations
must be followed
exactly, otherwise
the court may declare
forfeiture proceedings
void.
A forfeited share
may be sold, re-allotted
or otherwise disposed
of at the discretion
of the directors.
Companies House
need not be notified
of the forfeiture
or re-allotment
except in the list
of members on the
company's next annual
return.
If a member cannot
pay a call on shares,
and if the member
and the company
agree, the shares
may be surrendered
to the company.
This has the same
effect as forfeiture
but avoids the formal
procedure. The company
may only accept
surrender if it
could have used
its power of forfeiture.
A private company
may hold forfeited
shares indefinitely
pending re-allotment.
A public company
must cancel the
forfeited shares
if they are not
otherwise disposed
of after three years.
If the cancellation
were to reduce a
public company's
allotted capital
below the statutory
minimum, it would
have to re-register
as a private company.
A company cannot
use forfeited shares
for the purposes
of voting.
16. What
are paid-up capital,
uncalled capital,
reserve capital
and share premium?
These terms are
used to describe
the make-up of a
company's share
capital:
- paid-up capital
is the issued
capital which
has been fully
or partly paid-up
by the shareholders;
- uncalled
capital is
that part of the
issued capital
on which the company
has not requested
payment;
-
reserve
capital
is that part
of the share
capital that
the company
has decided
will only be
called up if
the company
is being wound
up and for the
purposes of
it being wound
up;
-
share
premium
is the excess
paid above a
share's nominal
value. This
excess must
be recorded
separately in
the company
books in a 'share
premium account'
and used for
the purposes
specified in
Section 130
of the Companies
Act 1985 (for
example, in
paying up unissued
shares to be
allotted to
members as fully
paid-up bonus
shares.)
As
an example, if a
company issues 1,000
shares at £1 each,
paid-up to 20% of
their value with
a 10% reserve and
a share premium
of 50p, the capital
is:
| paid-up capital |
= |
£200 |
(1,000
x £0.20) |
| reserve capital |
= |
£100 |
(1,000
x £0.10) |
| uncalled capital |
= |
£700 |
(1,000
x £0.70) |
| share premium |
= |
£500 |
(1,000
x £0.50) |
Back to top
CHAPTER
2
Shares
1. Are there
different types
of shares?
A company may have
as many different
types of shares
as it wishes, all
with different conditions
attached to them.
Generally share
types are divided
into the following
categories:
-
Ordinary
As the name
suggests these
are the ordinary
shares of the
company with
no special rights
or restrictions.
They may be
divided into
classes of different
value.
-
Preference
These shares
normally carry
a right that
any annual dividends
available for
distribution
will be paid
preferentially
on these shares
before other
classes.
-
Cumulative
preference
These shares
carry a right
that, if the
dividend cannot
be paid in one
year, it will
be carried forward
to successive
years.
-
Redeemable
These shares
are issued with
an agreement
that the company
will buy them
back at the
option of the
company or the
shareholder
after a certain
period, or on
a fixed date.
A company cannot
issue redeemable
shares only.
2.
Can shares be in
any currency?
Yes, and different
types of share may
be in different
currencies. However,
a public limited
company must have
at least £50,000
of its issued capital
in sterling, irrespective
of what other currency
it uses.
3. Can a
company change the
currency of its
shares
No, not directly.
However, a company
may purchase its
own shares (see
questions 7 and
8) and allot shares
in a different currency
or it may seek a
court order to reduce
its issued capital
to zero, cancel
its authorised capital,
and simultaneously
create capital and
allot shares on
a proportional basis
in the new currency.
Remember that a
public limited company
must always have
a sterling share
capital of at least
£50,000.
4. Can a
company change its
shares?
If authorised by
its articles of
association, a company
may pass an ordinary
resolution to:
-
consolidate
and divide its
share capital
into shares
of larger amounts
than its existing
shares, for
example 200
shares of £1
may be consolidated
and divided
into 100 shares
of £2;
-
sub-divide
its shares,
or any of them,
into shares
of smaller amounts,
for example,
a £1 share may
be divided into
10 shares of
10p;
-
convert
all or any of
its paid-up
shares into
stock or re-convert
stock into shares.
A company cannot
issue stock
in the first
instance. It
can only convert
issued shares
into stock.
(Converting
shares into
stock means
treating them
as one merged
fund equivalent
to the nominal
value of the
individual shares.
For example,
100 shares of
£1 each would
convert to £100
stock.)
In
all the above cases,
the total authorised
and issued share
capital remains
unaltered. Notice
of the change must
reach Companies
House on Form 122
within one month.
For more information
about resolutions,
see our booklet
'Resolutions'.
| 
