FID Trust International

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:

  1. 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.
  2. Preference. These shares normally carry a right that any annual dividends available for distribution will be paid preferentially on these shares before other classes.
  3. 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.
  4. 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 have redeemable shares only.

Different types of shares 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.

However, a company may purchase its own shares 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.

If authorised by its articles of association, a company may pass an ordinary resolution to:

  1. 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;
  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;
  3. 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. No fee is payable to Companies House.

A company may alter the rights attached to any class of shares. How this can be done depends on whether the rights stem from the memorandum or articles or elsewhere. However, a company cannot convert non-redeemable shares into redeemable shares.

Dissenting shareholders who hold at least 15% of the issued shares of that class may apply to the court to have the variation cancelled. They must do this within 21 days after consent was given or a resolution passed to vary the rights. The company must deliver a copy of the court order to Companies House within 15 days of it being made.

Special rights attached to shares and newly created class rights:

The following forms must be delivered to Companies House (no fee is payable) within one month in the circumstances described:

  1. When a company allots shares with rights that are not stated in the memorandum or articles or in a resolution or agreement that must be sent to Companies House: use Form 128(1).
  2. When a company varies the rights attached to shares except by amending the memorandum or articles or by a resolution or agreement that must be sent to Companies House: use Form 128(3).
  3. When a company assigns a name or new name to any class of its shares except by amending the memorandum or articles or by a resolution or agreement that must be sent to Companies House: use Form 128(4).

A company which has issued redeemable shares may reduce its issued share capital by redeeming them in accordance with the agreement under which they were issued. However, if the shares are not returned to the company in accordance with the agreement - for example, if they are returned earlier than stated in the agreement - then the transaction must be dealt with as a purchase of the company's own shares.

Notification of redemption of shares must be delivered to Companies House within one month on Form 122. No fee is payable to Companies House.

If permitted by its articles, a company may pass a special resolution to authorise the company to buy some of its shares. But it cannot do so if this would leave only redeemable shares in issue.

The terms of the resolution will depend on whether it is a 'market purchase' (that is, a purchase made on a recognised stock exchange) - or an 'off-market purchase' (that is, a purchase made otherwise than on a recognised stock exchange or made on a recognised stock exchange but not subject to a marketing arrangement on that exchange).

An off-market purchase may only be made:

  1. in accordance with the terms of a contract authorised in advance of the purchase by a special resolution; or
  2. under the terms of any contingent purchase contract that has been approved in advance by a special resolution.

Generally, when a company purchases its own shares, the shares are cancelled on their return to the company and the purchase must be notified to Companies House on Form 169 within 28 days. However, a listed public company may hold the shares "in treasury" for resale or transfer to an employees shares scheme at a later date, in which case the purchase must be notified to Companies House on Form 169(1B).

Purchase of own shares out of capital (private companies only):

If a purchase by a private company is financed by payment out of its capital, the directors must also have made a statutory declaration on Form 173 about the solvency of the company immediately after the purchase and in the next year. A report by the company's auditor confirming the directors' opinion must be attached to the form and delivered to Companies House no later than the day on which notice of the proposed payment out of capital is first published. (Requirements for publishing the notice are covered by section 175 of the Companies Act 1985.)

The purchase by a company of its own shares is a chargeable transaction under the Finance Act 1986 .Stamp Duty is payable on the aggregate amount of the re-purchase price at ½% rounded up to the nearest multiple of £5.

Stamp duty:

Before sending Form 169 or Form 169(1B) to Companies House, they must be stamped by the Inland Revenue.

No fees are payable to Companies House on Forms 169, Form 196(1B) or Form 173.

A transfer document is not necessary when a company redeems its shares, or buys its own shares and cancels them. None of these events qualifies as a transfer of shares, and the company issued share capital must be reduced on the return of the shares to the company. (The company authorised share capital is not affected).

A transfer document is also not necessary when a listed public company buys its own shares and holds them in treasury for later disposal. Although this type of purchase does not reduce the company issued share capital - the company becomes a shareholder and is entered as such in the register of members - a stamped Form 169(1B) must be completed and delivered to Companies House within 28 days of the purchase. No fee is payable to Companies House.

If a listed public company is buying some shares to hold in treasury and some to be cancelled, then Form 169 must be completed for the shares that are to be cancelled and Form 169(1B) must be completed for the shares that are to be held in treasury. No fee is payable to Companies House.

If the company subsequently decides to cancel treasury shares, or sell treasury shares, or transfer treasury shares to an employees shares scheme, Companies House must be notified within 28 days on Form 169A(2). £5 stamp duty is payable on the cancellation of treasury shares but not on their sale or transfer to an employees" share scheme.

Please note: A sale of shares from treasury is not an allotment of new shares. Please do not send Form 88(2) to Companies House.

Shares in a public company are normally transferred through a broker dealing in the market appropriate to those shares, usually, the London Stock Exchange or the Alternative Investment Market. However, shares may be transferred directly from seller to buyer and the company informed accordingly.

Shares in a private company are usually transferred by private agreement between the seller and the buyer. In both cases, a transfer document must be completed. The articles of association of private companies often place restrictions on the transfer of shares that must be observed.

The transfer of shares is normally a chargeable transaction under the Stamp Act. Stamp Duty is payable to the Inland Revenue on the aggregate amount at ½% rounded up to the nearest multiple of £5.

The transfer of shares in a public limited company is usually dealt with through a broker.

To transfer shares in a private or unlimited company, a seller must complete and sign the appropriate section of a 'stock transfer form' - available from law stationers - and pass it, together with the share certificate, to the new owner.

The new owner must then complete their section of the stock transfer form, pay any stamp duty to the Inland Revenue and pass the completed form and share certificate to the company. The company secretary then arranges for the directors to authorise the change to the members' register and issues a share certificate in the new name.

Do not send stock transfer forms to Companies House. They should be kept with the company's own records.

In some instances shares may be transmitted by operation of law. The main examples of this are when a registered shareholder dies or becomes bankrupt.

On death, shares held in the sole name of the deceased are vested in the personal representative or executor of the deceased. This person should inform the company and provide the necessary evidence so that the fact can be registered and the personal representative can receive all notices and dividends relating to the shares. The articles of association of companies often provide that a personal representative cannot exercise the votes attaching to the deceased's shares until he or she is registered as the holder of the shares.

On the winding up of the deceased's estate, the personal representative must inform the company of the beneficiary (or beneficiaries) of the shares so that the necessary alterations to the register of members may be made and new certificates issued.

If a share is jointly held, the survivor(s) will be the only person(s) recognised as having title to the share. The company should be informed immediately and be given any necessary evidence of the death in order to alter the register of members and issue a new share certificate.

The position of a bankrupt shareholder is similar. Until a new member is registered, the rights to dividends are vested in the trustee in bankruptcy. The bankrupt may remain a member and be able to vote, but only in accordance with the directions of the trustee. This is so where the name of the bankrupt shareholder remains on the register, but the trustee generally has a right under the company's articles of association to apply to be registered as a member in respect of the bankrupt's shares.

Any restrictions on the transfer of shares contained in the company articles will normally apply to a transfer or application resulting from the death or bankruptcy of a shareholder.

Share warrants

A share warrant is a document which states that the bearer of the warrant is entitled to the shares stated in it. If authorised by its articles, a company may convert any fully paid shares to 'share warrants'. These warrants are easily transferable without any need for a transfer document; that is, they can simply be passed from hand to hand.

When share warrants are issued, the company must strike out the name of the shareholder from its register of members and state the date of issue of the warrant and the number of shares to which it relates. Subject to the articles, a share warrant can be surrendered for cancellation. If so, the holder is entitled to be re-entered into the register of members. Vouchers are usually issued with the share warrants in order that any dividends may be claimed.

The holder of a share warrant remains a shareholder but whether they are a member of the company depends on the articles of the company. A company which converts all its shares to share warrants should be careful: it could become a memberless company and therefore cease to exist.

Share certificate

This will be dealt with in the company's articles. For example, a typical provision is set out in paragraph 7 of Table A of The Companies (Tables A to F) Regulations 1985 which allows for a replacement share certificate to be issued when the directors are assured that the old certificate has been lost, worn out, defaced, or destroyed.

The directors will normally require the holder to give up any defaced or worn-out certificate and to sign an indemnity about the use of any lost or destroyed certificate. They may also require the holder to pay any reasonable expenses for investigating any evidence of loss.

The share belongs to the registered holder, not the company. If a person is eventually declared legally dead, then the share should be transmitted to the beneficiary (or beneficiaries) - see question 10.

If authorised by its articles, a company may retain any dividends that remain unclaimed after a certain period.