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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 in England, Wales or Scotland with a 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 transfer

You will find the relevant law in the Companies Act 1985 (as amended).

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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.

• A public company may offer shares to the general public. Share offers to the public are made in a prospectus or are accompanied by listing particulars. For more information on prospectuses and listing particulars, 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.

• if a court order confirms a 'minute of reduction' following a special resolution of the company;
• if shares are redeemed (bought back) in accordance with a redemption contract;
• if the company's articles allow it to buy its own shares and this purchase is authorised by a special resolution. A public company whose shares are listed on a recognised investment exchange can either cancel those shares or hold them ‘in treasury’ for resale or transfer to an employees’ shares scheme at a later date. In all other cases the shares are regarded as cancelled when the company buys them back, although this does not reduce the company’s authorised share capital.

No. With effect from 1 July 2005, prospectuses and listing particulars are no longer required to be registered at Companies House. However, the general rule is that a person may not make an offer of securities to the public in the UK, or seek admission to trading on a regulated market in the UK, unless a prospectus approved by the Financial Services Authority has been published.

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 15), 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 and deliver them within one month of the first allotment stated on each form.

Note: in the case of a rights issue, the date(s) of allotment will usually be the date(s) on which the shares are allotted following receipt by the company of acceptances/renunciations NOT the date on which provisional allotment letters are issued.

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. Do not include any amount that is not yet due for payment on a partly paid-up share. The amount will reflect the nominal value of the shares and any premium.

If the shares are to be allotted for a non-cash payment (see questions 12 and14), the amount entered on the form against ‘Amount (if any) paid or due on each’ must be ‘nil’ or ‘0.00’.

11. Must shares be fully paid-up at the time of allotment?

No. Payment may be deferred until later. However, shares allotted in a public company must be 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, that is, a scheme for encouraging share ownership by employees, former employees and their families).

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 14.

A company's shares must not be allotted at a discount (that is, for an amount less than the nominal value of the shares).

12. 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. It also includes cash payments to any person other than the company allotting the shares.

Public companies are more restricted in what they may accept in payment for shares and non-cash payments must be valued before shares are allotted (except in the case of bonus issues, mergers or arrangements whereby shares in another company are cancelled or transferred to the company). 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.

• 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’s financial records 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.)

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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 have redeemable shares only.

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

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). For more information on holding shares in treasury, see question 8.

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’s 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.

9. Can I buy shares from someone else?

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.

10. How are shares transferred to new owners?

The transfer of shares in a public limited company is usually dealt with through a broker as described in question 9.

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.

11. What is a transmission of shares?

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’s articles will normally apply to a transfer or application resulting from the death or bankruptcy of a shareholder.

12. What are 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.

13. What happens if a share certificate is lost?

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.

14. Can a share be cancelled if the holder cannot be traced?

No. 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 11.

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

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CHAPTER 3
Further information

1. Where can I get further information?

You should consult your professional advisers on all share capital matters. You may also telephone Companies House on 0870 3333636 for basic guidance.

2. How do I send information to the Registrar?

You may deliver documents to the Registrar by hand (personally or by courier), including outside office hours, on bank holidays and at weekends to Cardiff, London and Edinburgh.

You may also send documents by post, by the Hays Document Exchange service (DX) or by Legal Post (LP) in Scotland. If you send documents, please address them to:

 

3. Where do I get forms and guidance booklets?

This is one of a series of Companies House booklets which provide a simple guide to the Companies Act s and related legislation.

Statutory forms and guidance booklets are available, free of charge from Companies House. The quickest way to get them is through this website or by telephoning 0870 3333636.

If you prefer you can write to our stationery sections in Cardiff or Edinburgh.

Forms can also be obtained from legal stationers, accountants, solicitors and company formation agents - addresses in business phone books.

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