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SHARES, BUYBACK OF SHARES, FINANCIAL ASSISTANCE - Coggle Diagram
SHARES
Classes of shares
- Ordinary = default position - right to vote in GM / to dividend / surplus on winding-up
- Preference = gives preference for dividend / surplus > shareholder payment is prioritised
a. Cumulative preference = default - if no dividend declared for a particular year, the right to the preferred amount on the share is carried forward and paid when funds are availableb. Participating preference = can participate with ordinary shares holders
- Deferred = no voting / dividend rights BUT potential entitlement to surplus profits after dividends have been paid
- Redeemable = issued with the intention that company will / may buy them back / cancel them
- Convertible = carry an option to convert into a different class of share
Variation of class rights Resolution must be varied according to provision in Articles
IF NO provision = written consent of holders of at least 75% of the issued shares of that class or by SRShareholders holding 15% of the relevant shares may can apply to court within 21 days of the resolution to have a variation cancelled
- Application will succeed if variation unfairly prejudices the shareholders
Terms
Issued Shares = amount of shares in issue shown in the company’s balance sheet composed of: shares purchased by the 1st members + shares issued after incorporateion
Allotted Shares = person gets unconditional right to be included in the company’s register of members in respect of those shares.
Called-up/Paid-up Shares = amount of nominal capital paid - once outstanding amount is demanded = called
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ALLOTMENT OF SHARES
Contract between company + shareholder where company issues new shares in return for the subscription price
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Administrative requirements on allotment1. Forms to send to CH
- Return of allotment (Form SH01) and capital statement within one month
- Forms detailing if persons with significant control have changed
2. Update register of members within two months of the allotment.3. Share certificates sent to new shareholders within two months of allotment.4. Copies of resolutions to be sent to Companies House within 15 days
- SR removing cap
- OR granting authority
- SR to remove pre emption rights
- Amended Articles
Shares = Bundle of rights
Share capital = money raised by issue of shares
Rights + enforcement of for classes of shares are set out in Articles
Nominal / par value = minimum subscription price for that share (shares in limited company with share capital must have it)
Premium = amount < nominal value that share is issued for
Shareholders to invest in shares for = receipt of dividends + increase in the capital value of the shares
Dividends can be:
1. Final – Declared by OR
2. Interim - paid out if company has realised an investment
TRANSMISSION OF SHARES
Automatic process in the event of death or bankruptcy of a shareholder:
- If a shareholder dies = shares pass to their personal representatives.
- If a shareholder is made bankrupt = shares vest in their trustee in bankruptcy.
TRANSFER OF SHARES
Contract to sell existing shares between shareholder and purchaserShares may be transferred by sale / gift BUT there are restrictions:1. Directors’ power to refuse to register of transfer
- Pre-emption clauses
- IF incorporated = shareholder wishing to sell shares must 1st offer them to other existing ones
Method of transfer
- Transfer by signed stock transfer form by the transferor + submitted with the share certificate, to the new shareholder
- On execution of the stock transfer form = beneficial title passes
- On the registration of the member as owner of those shares in the register of members = legal title passes
- Stock transfer form must be stamped before the new owner can be registered as the holder of those shares = stamp duty is 0.5% of the consideration rounded up to the nearest £5.
- No stamp duty is payable where the consideration is £1000 or less
BUYBACK OF SHARES
Procedure:
BM
- BR to approve the directors’ statement of solvency (‘DSS’) and the auditors’ report (‘AR’)
- BR to call a GM and approve form of notice / propose a WR
- Contract to be made available to shareholders
a. If GM: contract must be available for inspection at the company’s registered office for at least 15 days prior to and at GM
b. If WR: circulate contract with WR
• DSS and AR must be signed no earlier than one week before the GM or the passing of the WR
OR WR
- Circulate WR with contract, DSS and AR.
- SR to approve payment out of capital and OR to approve contract
- Holders of shares being bought back are not eligible to vote
GM
- Shareholders pass OR to approve contract
- Shareholders pass SR to approve payment out of capital
- Holders of shares being bought are not eligible to vote.
- Contract, DSS and AR must be available at the meeting
FOLLOWING GM / WR
1.Within 7 days: place notices in Gazette and national newspaper and file DSS and AR at Companies House
2.Within 15 days: file SR at Companies House
- For five weeks after date of SR: creditors and shareholders have right to object. Copies of DSS and AR must be available for inspection at company’s registered office
BM 2:
- BR to enter into the contract
- BR to appoint a director(s) to sign the contract
- Payment out of capital must take place between 5-7 weeks after SR passed.
POST MEETING
- File return, notice of cancellation & statement of capital within 28 days
- Keep copy of contract for 10 years
- Cancel shares, update register of members (and PSC register if applicable).
Conditions
Buyback of shares out of capital possible if
- The purchase of own shares is not restricted or prohibited in the company’s Articles
- The shares being purchased by the company are fully paid up
- Following the purchase, the company must continue to have issued shares other than redeemable and treasury shares
- The accounts were prepared no more than three months before the directors’ statement to ascertain available profits
- The company has not any distributable profits / funds from a fresh issue of shares available (those must be used to fund the buyback before capital can be used)
- A directors’ statement of solvency (company will remain solvent for 1 year after buyback) is prepared together with an auditors’ report (confirming directors' opinion is reasonable) no earlier than one week before the GM
- A special resolution to approve payment out of capital is passed within a week after the directors sign the written statement of solvency
- Redemption of redeemable shares
Redeemable shares give the holder temporary membership in the company.
All details of the redemption, including date of redemption and the price to be paid at that date, will either be in the Articles or determined by the directors
A contract is not required to redeem shares, irrespective of the source of funding used
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- Buyback of shares takes place when a company purchases its own shares from an existing shareholder using one of the following funds:
- Distributable profits;
- Proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
Procedure:
- Check there is no limit in Articles on s 690 power to buyback shares
- Confirm shares are fully paid
- Prepare accounts to check there are sufficient distributable profits
BM
- BR to approve the draft contract
- BR to call a GM and approve form of notice / propose a WR
- Contract to be made available to shareholders
a. If GM: contract must be available for inspection at the company’s registered office for at least 15 days prior to and at GM
b. If WR: circulate contract with WR
GM / WR
- Shareholders pass OR to approve contract
- Holders of shares being bought are not eligible to vote
BM 2
- BR to enter into the contract
- BR to appoint a director(s) to sign the contract
POST MEETING
- File return, notice of cancellation & statement of capital within 28 days
- Keep copy of contract for 10 years
3.Cancel shares, update register of members (and PSC register if applicable)
Conditions
Buyback of shares out of profits / proceeds of a fresh issue possible if
- The purchase of own shares is not restricted or prohibited in the company’s Articles
- The shares being purchased by the company are fully paid up
- Following the purchase, the company must continue to have issued shares other than redeemable and treasury shares
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