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Alteration of share capital
There are statutory provisions in Ch 8, Pt 17 of the Companies Act 2006 (the CA 2006) governing how a limited company having a share capital may alter its share capital.
Ways of altering share capital
Common ways to alter share capital include:
reconversion of stock into shares
Sub-division is a process by which a limited company having a share capital may change the structure of its share capital by increasing the number of all or any of the shares it has in issue, thereby decreasing the nominal value of each share.
Consolidation is a process by which a limited company having a share capital may change the structure of its share capital by reducing the number of all or any of the shares it has in issue, thereby increasing the nominal value of each share.
Reconversion of stock into shares
Stock created before 1 October 2009 by a limited company may be reconverted into fully paid-up shares of any nominal value. However, a company may no longer convert its shares into stock.
A limited company having a share capital may convert its shares from having a fixed nominal value in one currency to having a fixed nominal value in another currency.
A company that redenominates its share capital may then reduce its share capital (pursuant to an expedited procedure) for the purpose (only) of adjusting the nominal values of the redenominated shares to obtain values that are, in the opinion of the company, more suitable. This reduction must not exceed 10% of the nominal value of the company’s allotted share capital immediately following the reduction.
Reasons to alter share capital
There are many reasons why a company may wish to alter its share capital.
Sub-division and consolidation
A company with securities admitted to trading on the Main Market of the London Stock Exchange or on AIM may wish to:
sub-divide its share capital to assist with liquidity by increasing the number of shares available in the market and allowing shares to be traded for smaller sums, and/or
consolidate its share capital to increase the level of ‘ownership’ that each share represents in the company and the market price of the shares
A consolidation may also be useful following a reorganisation to readjust a company’s share capital where unwieldy nominal amounts may have been created.
Reconversion of stock into shares
It is now pretty rare for a company to hold stock rather than shares and there is no real reason for a company to retain stock instead of shares.
Redenomination of share capital
A company may wish to redenominate its share capital to align the currency it uses on a day-to-day basis with that of the rest of its group.
In all cases, an alteration of share capital is achieved through a resolution of the members and, in the case of a sub-division, consolidation or redenomination of share capital, the appropriate power is subject to any restrictions in the company’s articles of association.
Notification of alterations to share capital
Notifications of alterations to share capital must be made within one month from the date of the alteration to Companies House on the appropriate Companies House form.
There are additional notifications to be made to Companies House on a reduction in connection with a redenomination of share capital.
In each case, a statement of capital will accompany the appropriate Companies House form. This will provide information with respect to the company’s share capital immediately following the relevant alteration of share capital. Information to be set out in the statement of capital includes the total number of shares of the company, the aggregate nominal value of those shares, particulars of any rights attaching to each class of shares, the amount paid up on each share and the amount unpaid (if any) on each share.
Failure to notify an alteration of share capital
If the company fails to notify Companies House of an alteration of the company’s share capital, an offence will be committed by the company and every officer of the company who is at fault.
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