How Can I Change The Share Capital?
All companies limited by shares must assign a nominal value to each of its shares during incorporation. This nominal value represents the ‘limited liability' of the company members. The total sum of shares at the nominal value is known as the share capital.
How can the share capital be changed?
Following the advice from Section 617 of the Companies Act 2006, there are a limited number of ways that share capital can be changed. The ways in which you can choose to change share capital are:
- Allotting new shares
- Reducing share capital
- Sub-dividing or consolidating share capital
- Redenomination of shares
- Reconverting stock into shares
So, how can you use these methods to change your share capital?
Issuing (allotting) new shares generally has the effect of increasing the share capital of the company. However, it is important to understand the difference between ordinary allotments and bonus issues.
An ordinary allotment of shares is the original shares issued following the initial company formation. These shares can subsequently be sold, or given, to existing or new shareholders to raise capital from investors, repay borrowing or reward employees, etc.
A company may decide to issue extra shares, free of charge, to existing shareholders in the same proportion as their existing holding; this is known as a bonus issue of shares.
While shares issued through ordinary allotment can be sold or given away, bonus issue shares can only be distributed to existing shareholders and must be done free of charge.
For more information about transferring shares, please check out our blog post: How do I transfer my shares?.
Reduction of capital
This is how companies decrease their share capitals through any number of means, such as share cancellations or repurchases (also known as buybacks). The result of capital reduction is the number of shares will decrease by the reduction amount. The company's market value won't change; there are simply fewer shares available to trade.
There are two ways in which this can be done:
- By special resolution with the confirmation of the court - this route has to be taken by limited companies
- By special resolution supported by a solvency statement of the directors - this route is for private limited companies only
The resolutions will need to be passed by at least 75% of the eligible members of the company.
Within 15 days of the resolution passing, Form SH10 needs to be filed with Companies House, along with:
- a copy of the shareholders' special resolution,
- a directors' statement of solvency,
- A directors' compliance statement, stating that the solvency statement was made no more than 15 days before the date of the special resolution.
Consolidation and sub-division
This allows a company to alter the number of shares and their nominal values, without changing the overall share capital. A sub-division will divide some, or all, of its shares into more shares of a smaller nominal value. In contrast, a consolidation will amalgamate some, or all, of its shares into fewer shares of a larger nominal value.
As long as the articles of association or shareholders agreement do not prohibit consolidation or sub-division of shares, it is only a matter of passing an ordinary resolution.
SH02 must be filed with Companies House within one month of the consolidation or sub-division taking place. Following this, a statement of capital must then be filled out to reflect the changes. Then, the register of members needs to be updated and new share certificates issued.
Also known as redenomination of share capital, this is the process of converting company shares from having a fixed nominal value in one currency to having a fixed nominal share in another currency.
For this to happen, an ordinary resolution needs to be passed, which is subject to restrictions within the articles of association.
The redenomination itself happens on the day the resolution is passed, or on a later date as specified by the resolution. If the redenomination still hasn't taken effect after 28 days, it will lapse.
- 30 Jul 2021 - My Company Has a CCJ Made Against It - What Should I Do?
- 22 Jul 2021 - What Do I Need To Keep In Mind When Upscaling My Business?
- 16 Jul 2021 - Company Wizard Help
- 09 Jul 2021 - Does My Company Have a TIN Number?
- 30 Jun 2021 - An Introduction to Corporation Tax