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Share Capital

1. What is share capital?

When people form a company, they decide whether to limit the members’ liability by shares.

On registration of a company limited by shares at Companies House, the shareholders must agree to take some, or all, of the shares. The statement of capital and initial shareholdings must show the names and addresses of the people who have agreed to take shares and the number of shares each will take. These people are called the subscribers.

2. 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 value.

A company may increase its issued capital by allotting more shares; it must make allotments under proper authority (see question 7)

A private company may normally only issue shares to its members, to staff and their families, to debenture holders, or to others by private arrangement;
A PLC may offer shares to the general public in a prospectus or by listing particulars.

3. Types of shares

A company may have as many different types of shares as it wishes, all with different conditions attached to them. Typically, share types fall into the following categories:

Ordinary: These are the ordinary shares of the company with no special rights or restrictions. The company may divide them into classes of different values;
Preference: These shares carry a right that the company should pay any annual dividends available for distribution on these shares before other classes;
Cumulative preference: These shares normally carry a right that, if the company cannot pay the dividend in one year, it will carry it forward to successive years;
Redeemable: These shares are issued by the company with an agreement that it will buy them back at the option of either the company or the shareholder after a certain period, or on a fixed date. A company cannot have only redeemable shares.

4. PLCs and the ‘authorised minimum’

A PLC cannot conduct business or exercise borrowing powers unless and until it has obtained a trading certificate from Companies House, and Companies House will not issue a trading certificate unless satisfied that the company satisfies the ‘authorised minimum’ share capital requirement. In order to satisfy the requirement and obtain a trading certificate, the nominal value of the company’s allotted share capital must be at least £50,000 or €65,600. The company cannot satisfy the requirement by a combination of euro and sterling shares or by shares in any other currency. To apply for a trading certificate, the company must deliver Form SH50 to Companies House

A company re-registering from a private company to a PLC does not have to apply for a trading certificate. However, in order to re-register, the nominal value of its allotted share capital must not be less than the authorised minimum and the authorised minimum requirement must be satisfied either entirely in sterling shares or entirely in euro shares.

Please note: When applying for a trading certificate (or for re-registration), if the company could meet the authorised minimum in either sterling or euro shares you will need to state in your application whether you are satisfying the authorised minimum requirement in sterling or in euros.

5. Statement of Capital

Throughout this guidance you will see references to a statement of capital. The Companies Act 2006 introduced this for all companies with share capital.

The statement of capital is a ‘snapshot’ of a limited company’s share capital at a given time.

Companies incorporating with share capital on or after 1 October 2009 must complete a statement of capital and initial shareholdings as part of the application to incorporate.

All companies with share capital must complete a statement of capital as part of any annual return filing made up to a date on or after 1 October 2009.

Companies must complete a statement of capital with certain forms that notify capital changes, namely:

Purpose Form Number
allotment of shares SH01
notice of consolidation, sub-division of shares or re-conversion of stock into shares or redemption of redeemable shares SH02
redenomination of shares SH14
reduction of capital as a result of redenomination SH15
cancellation of re-purchased shares or, (for PLCs), immediate cancellation of shares re-purchased into treasury SH06
subsequent cancellation of shares held in treasury by a plc SH05
cancellation of shares held by or for a plc in accordance with section 662 of the Companies Act 2006 SH07
In all the circumstances listed above, the statement of capital will be an integral part of the appropriate form.

There will be occasions where a limited company needs to file a ‘stand-alone’ statement of capital, for example to accompany a reduction of share capital approved by the court or (in the case of a private company) supported by solvency statement, and (in some instances) when re-registering from an unlimited to a limited company. A statement of capital Form SH19 will be available for these purposes.

The statement of capital must show the following details of the capital:

(a) the total number of shares of the company;
(b) the aggregate nominal value of those shares;
(c) for each class of shares:
(i) prescribed particulars of the rights attached to the shares
(ii) the total number of shares of that class, and
(iii) the aggregate nominal value of shares of that class; and
(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
6. Allotment of shares

A company may increase its share capital by allotting additional shares. Shares are ‘issued’ when a person is registered as a member in the company’s register of members.

7. Authority to allot

'Allotment' is the process by which a person acquires an unconditional right to be issued with shares. Directors allot shares on the company’s behalf, but either the company’s articles or a resolution of the company needs to authorise them to do so.

(An exception to this is that a private company incorporated under the 2006 Companies Act, that will only have one class of shares following the allotment, does not need any prior authorisation from the company to allot shares unless there is a specific restriction in the articles. Private companies incorporated before this date will need to pass an ordinary resolution to qualify for this exemption, provided there is no specific restriction in their articles).

8. Payment for shares

Payment for shares in a private company can be in a variety of ways including cash, goods, services, property, good will, know-how, or even shares in another company.

Generally, people can pay for shares in a private company;

wholly for cash;
partly for cash and partly for a non-cash payment; or
wholly for a non-cash payment.
Payment for shares in a public company must, in most instances, be for cash. However, if shares are allotted in a public company for a non- cash consideration, the consideration for the shares is subject to an independent valuation in most cases. You must send a copy of the individual valuation report to the proposed allottee for the share(s) and to Companies House when registering the Form SH01.

9. Notice of allotment

Within one month of the allotment of shares, a limited company must deliver a return of allotment, on Form SH01, to Companies House. You must complete a statement of capital as part of this form.

If you are a limited company and the person pays for the shares in cash, you must include in the return details of the actual amount paid or unpaid.

If the company allots shares fully or partly for a non-cash element, you must show the extent to which the company has treated the shares as paid-up on the Form SH01 and you must also include a brief description of the non-cash payment for the shares.

You can notify a series of allotments on the same Form SH01, but you must send the form to Companies House no later than one month after the date of the first allotment. If you do this, the statement of capital should reflect the company’s position following the ‘last’ allotment.

The company must notify the allotment of bonus shares to Companies House on Form SH01. It should show the amount paid on each share as ‘nil’ or ‘0.00’ and the shares as paid up ‘otherwise than in cash’.

An unlimited company only needs to notify Companies House if it is allotting a new class of shares (i.e. a class of shares which have rights that differ in any way to any previously allotted shares). You must complete and deliver a Form SH09.

10. Redenomination of share capital

Under the Companies Act 2006 any company limited by shares can (subject to prohibition or restriction in its articles) re-denominate its share capital, or any class of its share capital, into other currencies by passing a resolution.

The company must use an appropriate ‘spot rate’ of exchange used for the redenomination – this must either be a rate prevailing on a particular day specified in the resolution, or the average rate taken from each consecutive day of a period specified in the resolution, (and the day or period chosen must be within the period of 28 days ending on the day before the resolution is passed).

You should follow a three-step route, for each class of shares, to calculate the new nominal value of each share in the class:

take the aggregate (total) of the old nominal values of all the shares of that class;
translate that amount into the new currency at the rate of exchange specified in the resolution;
divide that amount by the number of shares in the class.
You must, within one month of the redenomination taking effect, deliver Form SH14 (which includes a statement of capital) to Companies House, as well as a copy of the resolution.

11. Sub-division and consolidation of shares

Unless its articles of association prohibit or restrict it, a company may pass an ordinary resolution to:

sub-divide its shares, or any of them, into shares of smaller amounts, for example, it may divide a £1 share into 10 shares of 10p;
consolidate and divide its share capital into shares of larger amounts than its existing shares, for example it may consolidate and divide 200 shares of £1 into 100 shares of £2;
reconvert any stock into paid up shares of any nominal value.
In the above cases, the total share capital remains unaltered. A company must deliver notice of the change to Companies House on Form SH02 (which includes a statement of capital) within one month of the alteration.

12. Variation of class rights

Rights attached to a class of shares (‘class rights’) typically cover matters such as voting rights, rights to dividends and rights to a return of capital on winding up.

The articles of association may set out class rights and may contain provisions for altering (‘varying’) those rights. If the articles do not contain provisions for varying the rights, the company can vary them either by obtaining consent from the holders of at least three quarters in nominal value of the issued shares of that class (excluding any treasury shares), or by the members of that class passing a special resolution at a separate general meeting.

You must deliver a copy of the special resolution to Companies House within 15 days. You must also deliver a Form SH10 (notice of particulars of variation of rights) to Companies House within one month of the date of variation.

The holders of not less than 15% of the aggregate of the issued shares of the class in question, disregarding any treasury shares in the class, are (if they did not consent to the variation) entitled to apply to the court to cancel the variation. They must make the application no later than 21 days after the consent was given, or the resolution passed. The court may confirm or cancel the variation and the company must deliver a copy of the court order to Companies House no more than 15 days after it is made.

13. New name or designation of class of shares

A company can give a name or designation to a class of shares (or a new name or new designation). You must deliver Form SH08 to Companies House notifying this change.

14. Reduction of capital

A company cannot generally reduce its share capital otherwise than as permitted by statute and confirmed by the court. However, under the Companies Act 2006, a company can reduce its capital in the following circumstances:

Reduction following redenomination

A company can reduce its capital following a redenomination of its share capital under the new procedure in the Act (see above), but this can only be done so as to obtain more suitable nominal values for the redenominated shares, e.g. if the redenomination results in nominal values that are not whole units of the new currency.

The company must pass a special resolution (within 3 months of passing the resolution to redenominate) and within 15 days deliver a copy of that, as well as Form SH15 (which includes a statement of capital) to Companies House.

You must also deliver a director’s statement confirming that the reduction does not exceed 10% of the nominal value of allotted shares immediately following reduction.

Reduction supported by a solvency statement

A private limited company can reduce its capital by special resolution supported by a solvency statement (so long as the reduction does not result in only redeemable shares being held). You must deliver to Companies House:

a copy of a special resolution authorising the capital reduction;
a copy of the solvency statement made in accordance with sections 642(1)(a) and 643 of the Companies Act 2006;
a statement of compliance by the directors.
All the company directors must sign the solvency statement.

A statement of compliance by the directors confirms that the company made a copy of the solvency statement available to each of the eligible members as required and that the directors did not make the solvency statement more than 15 days before the company’s members passed the resolution. All the directors must sign this statement of compliance.

You must deliver a copy of the solvency statement and resolution, and the statement of capital and statement of compliance by the directors, to Companies House. You must deliver all of the documents to Companies House within 15 days of the passing of the resolution. Wherever possible, you should deliver all the forms together. The reduction of capital will not take effect until Companies House has registered a copy of the solvency statement, resolution and statement of capital.

Reduction confirmed by a court order

A company can reduce its capital by passing a special resolution and obtaining confirmation of the reduction from the court. You must also prepare a statement of capital and get this approved by the court. You must then deliver the original and a copy of the court order to Companies House, along with the statement of capital. In most instances, the reduction will not take effect until Companies House has registered the copy of the court order and the statement of capital.

However, the ‘authorised minimum’ requirement constrains public companies. If a capital reduction brings the nominal value of a PLC's allotted capital below the authorised minimum, it will generally need to re-register as a private company. For this purpose, however, a public company can satisfy the authorised minimum requirement by means of shares denominated in multiple currencies.

15. Cancellation of shares by a PLC following forfeiture or surrender

If shares in a PLC have been forfeited, surrendered or acquired in various circumstances described in section 662 of the Companies Act 2006, the company must (unless the shares or the company’s interest in them is disposed of in some other way) cancel those shares, generally within three years (in some cases within one year), and reduce its capital by the nominal value of the cancelled shares. The directors may reduce the company’s capital without a special resolution approved by the court. Within one month of the cancellation you must deliver Form SH07 (which includes a statement of capital) to Companies House. If the reduction in capital results in the nominal value of the company’s allotted share capital falling below the authorised minimum the company must re-register as a private company. (The time limit for re-registration is the same as that for cancellation of the shares).

16. Redemption of shares

If a private company or plc has issued redeemable shares, it may redeem the shares in accordance with the terms of redemption. The directors may, if authorised either by the company’s articles or by a resolution, set the terms of redemption. Otherwise, the terms must be stated in the company’s articles. When shares are redeeming in a company, you must deliver Form SH02 (which includes a statement of capital) to Companies House within a month of the redemption.

17. Purchase of own shares

Subject to any restriction or prohibition in the articles and the approval of its shareholders, a company can purchase its shares. But it cannot do so if this would leave only redeemable shares in issue.

You must notify the purchase to Companies House on Form SH03 within 28 days.

When a company purchases its own shares, it cancels the shares on their return. If it cancels the shares immediately (this will be the case for all private companies and most plcs), it must deliver Form SH06 (which includes a statement of capital) to Companies House.

However, a public company with qualifying shares may either cancel those shares immediately or hold them ‘in treasury’ for resale or transfer to an employees’ shares scheme at a later date (or it may cancel them at a later date).

You must notify the initial purchase of ‘treasury’ shares to Companies House on Form SH03 and if you are cancelling those treasury shares immediately you must file Form SH06.

If you sell or transfer the shares from treasury, you must deliver Form SH04 and if you subsequently cancel the shares, you must deliver Form SH05 (which includes a statement of capital).

A purchase of a company’s own shares may be subject to stamp duty. If the consideration for the shares is above £1000, HM Revenue & Customs (HMRC) must stamp the Form SH03 before it is delivered to Companies House,

If the consideration is £1000 or less, you need not send the form to be stamped, but you must sign the certification on the form.

You may use a single Form SH03 to notify Companies House of purchases of shares on different dates and under different contracts.

18. Redemption or purchase of shares out of capital

A private company can, subject to any restriction or prohibition in the articles, pass a special resolution to finance a purchase or redemption of shares out of capital. If a private company finances a purchase by a payment out of its capital, the directors must also make a statement about the solvency of the company immediately after the purchase and in the following year.

All the company directors must sign the solvency statement.

You must make a copy of the statement and auditor’s report confirming the directors’ opinion available to the members at or before the time you deliver the resolution to them in the case of a written resolution. Or, if the resolution is to be passed at a meeting, by making a copy of the directors’ statement and auditor’s report available for inspection at that meeting.

You must also deliver a copy of the directors’ statement and auditors report to Companies House no later than the day on which you first publish or give notice of the proposed payment out of capital (requirements for publishing and giving notice are covered by section 719 of the Companies Act 2006).

Any member of the company who did not consent or vote in favour of the resolution or any creditor of the company can apply to court to cancel the resolution, within five weeks of the passing of the resolution.

The applicants to court must complete and deliver Form SH16 to Companies House immediately.

When a company receives notice of the application to court, it must immediately notify Companies House on Form SH17 and, within 15 days of the making of a court order, the company must deliver a copy of the order to Companies House.

For further information on share capital and its maintenance, please refer to Parts 17 and 18 of the Companies Act 2006.