Share Capital

Modernisation of share capital requirements
 

Companies incorporated after 1 October 2009 now operate under new rules relating to share capital, share issues and share capital reorganisations which have been brought into effect by the Companies Act 2006. Many of the changes are designed to be deregulatory and make life easier, particularly for companies with simple capital structures. For existing companies (those incorporated before 1 October 2009) some of the changes, particularly those relating to the authorities required for share issues, will not apply unless the company resolves that they should do so (depending on the circumstances, by passing a shareholder resolution and/or amending their articles). Other changes, however, such as those relating to new share capital alteration procedures and new filing requirements apply automatically to existing companies, as well as to companies incorporated under the act. Companies therefore need to be aware of them.

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The changes include the following:

Authorised share capital

The concept that companies must have "authorised share capital" is abolished by the act. This means that, for newly incorporated companies, there is no automatic cap on the number of shares that the company can allot unless a shareholder resolution is passed to increase the amount of the company's authorised share capital. However, the authorised share capital of an existing company (previously found in its memorandum) continues to act as a cap on the number of shares that it can allot and is now deemed to be in the company's articles. The cap can, however, in most cases be removed by passing an ordinary resolution or amending the company's articles.

Other share issue authorities

For private companies with only one class of shares, the directors will now have automatic authority to allot shares of the same class, but they will still need shareholder authority to allow them to allot shares of a different class. However, this only applies as the default for private companies incorporated after 1 October 2009 and the company may reverse the position in its articles (so that shareholder authority is still required). This change does not apply to existing companies or to public companies. Directors of those companies still, therefore, need shareholder authority to allot shares. However, note that for both existing and new companies, rules on statutory pre-emption still apply to require shares (to be allotted for cash) to be offered first to existing shareholders, unless this requirement is disapplied by a special resolution or in the articles.

Redeemable shares

Provided that the articles do not restrict their issue, a new or existing company planning on issuing redeemable shares, need no longer set out in full the terms, conditions and manner of redemption of the redeemable shares in its articles. The company may include a power in its articles (or may give authority by ordinary resolution) to allow the directors to set the terms, conditions and manner of redemption of the shares before they are allotted. The terms of redemption of the shares may also, by agreement between the company and the holder of the shares, allow for the redemption money to be paid on a date later than the redemption date. Existing companies would need to amend the terms and conditions of redemption of redeemable shares to take advantage of this.

New procedures to alter the company's share capital

The act has introduced two new procedures giving greater flexibility to companies in altering their share capital. The first, became available in October 2008 and means that a company can now reduce its share capital without going to court if it obtains the authority of a special resolution supported by a solvency statement. This new procedure can be advantageous in creating distributable reserves. The second, available from 1 October 2009, allows a company to redenominate its shares into another currency with the authority of an ordinary resolution. A company which has redenominated its share capital may also, by passing a special resolution, reduce its capital by up to 10% of the allotted nominal share capital after the reduction to allow the nominal value to be rounded to a more suitable amount. The redenomination procedure is likely to be useful to manage distortion of a company's results as a result of exchange rate fluctuations where its accounts are prepared in another currency.

Statement of capital

The introduction of the act has brought new forms and filing requirements for companies. One new feature of the act is that when various events take place affecting the company's shares capital, a "statement of share capital" must be filed at Companies House. For example, a statement of capital must be filed as part of the form of incorporation, as part of the annual return and following various alterations of capital including to accompany a return of allotment, on a sub-division or consolidation and reduction of capital etc. It must also be sent to a shareholder on request. The statement of capital must set out detailed information in relation to the company's share capital including particulars of the rights attached to the shares.

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