- 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.
- The members must agree to take some, or all, of the shares when the company is registered.
The memorandum of association must show the names of the people who have agreed to own shares and the number of shares each will own. These people are called the subscribers.
- The amount of share capital stated in the memorandum of association is the company's 'authorised' or 'nominal' capital.
- There is no maximum to any company's authorised share capital and no minimum share capital for private limited companies.
- However, a public limited company must have an authorised share capital of at least £50,000 (and, if it is trading, issued capital of £50,000).
- A company may increase its authorised share capital by passing an ordinary resolution (unless its articles of association require a special or extraordinary resolution).
- A copy of the resolution and notice of the increase on Form 123 must be filed with the Companies House within 15 days of being passed.
- A company may decrease its authorised share capital by passing an ordinary resolution to cancel shares which have not been taken or agreed to be taken by any person.
Notice of the cancellation, on Form 122, must be filed with Companies House within one month.
- Issued capital is the value of the shares issued to shareholders.
- This means the nominal value of the shares rather than their actual worth.
- The amount of issued capital cannot exceed the amount of the authorised capital.
A company need not issue all its capital at once, but a public limited company must have at least £50,000 of allotted share capital. Of which, 25% of the nominal value of each share and any premium must be paid up before it can start business or borrow.
Reducing company's issued capital
- A company cannot normally reduce its issued capital as this is the personal property of the shareholders, not of the company. However, the following exceptions apply:
- 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.
ALLOTMENT OF SHARES
- 'Allotment' is the process by which people become members of a company.
- Subscribers to a company's memorandum are deemed to have agreed to take shares on incorporation and the shares are regarded as 'allotted' on incorporation.
- However, the directors must not allot shares without the authority of the existing shareholders.
- The authority will either be stated in the company's articles of association or given to the directors by resolution passed at a general meeting of the company.
- The authority must be for a fixed period of up to five years.
Any ordinary resolution giving, varying, revoking or renewing an authority to allot shares must be delivered to Companies House within 15 days of being passed.
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:
- Shares in a public company are normally transferred through a broker dealing in the market appropriate to those shares, that is, the Stock Exchange or the Alternative Investment Market.
However, shares may be transferred directly from seller to buyer and the company informed accordingly.
TRANSFER OF SHARES
- 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 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.
- The transfer of shares in a public limited company is dealt with through the Stock Exchange's 'Crest' system.
- 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.
ADDRESS OF THE REGISTRARS
For companies incorporated in Scotland:
The Registrar of Companies
Cardiff CF14 3UZ
For companies incorporated in England & Wales:
The Registrar of Companies
37 Castle Terrace
Edinburgh EH1 2EB
DX ED235 Edinburgh 1
LP-4 Edinburgh 2