. There are many business structures entrepreneurs can choose from when it comes to setting up a business. Choosing a business structure can be a complicated task, however, the first step is to ascertain the best structure for your business needs. A company start-up to run a business will usually have money (and perhaps other assets) put into it by the shareholders in return for shares. A typical start-up a company will have 1,000 shares (although they may have many more). Any individual shareholder can have just one or many shares. A private company is normally restricted to issuing shares to its members, to staff and their families and to debenture holders. However, by private arrangement, the company may issue shares to anyone it chooses. Shares in a private limited company may only be sold or transferred with the permission of the directors. A private company can purchase its own shares either using available distributable profit or in certain circumstances from capital - however the former process is by far the simples
What is the "share capital"? Share capital is the investment in a company by its members (owners). The amount is contributed in exchange for the share of ownership, a certificate being issued for each share. When a company is established, the people who form the company decide that the member' s liability is limited to their contributed share capital. What is "authorised share capital"? Authorised or nominal share capital is the maximum value of shares that can be distributed to existing or potential investors. Or, the amount of share capital stated in the memorandum of association is the company 's "authorised" or "nominal" share capital. It is the total share capital available to the company. What is "issued share capital"? Issued share capital is the number and value of shares issued from the total authorised share capital. For example, if a company has an authorised share capital of £1,000.00 divided into 1,000 shares of £1.00 and there are two subscribers only taking one £1.00 share each the total issued share capital is £2.00. In this example one issued share therefore represents a 50% ownership of the company. The remaining 998 shares are meaningless until issued; they are simply there for future expansion. It is worth remembering that issued shares must be paid for at some stage, not necessarily immediately, bit in the future. If you decide to issue £10,000 shares to a subscriber then that person must pay the company £10,000 at some stage. For this reason most companies are formed with only one £1.00 share issued per subscriber (assuming all subscribers are equal owners of the company).
There is a statutory requirement for a minimum of one shareholder and for the details of shareholders to be put on public record. It goes without saying, that a watertight limited company for tax purposes should not have any details pertaining to the private investor on public record. If you do not want to disclose your name to the public, Coddan CPM will provide you with a nominee shareholder with a view to securing your corporate and financial privacy and anonymity. Nominee shareholder service: why have and who is a nominee shareholder? The provision of nominee shareholder services in connection with the formation of a limited company is invariably required by clients seeking legitimate confidentiality of ownership. Nominee shareholder service costs only £100.00 per year. Coddan provides nominee shareholders to serve as proxies for the company owners and to act on their behalf. Our corporate nominees will hold the shares for clients under a legally executed Declaration of Trust. Interested in this service? Let us know how we can help.
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What are the main general legal rights and duties of shareholders? Shareholders in a company have a number of rights under the law. These are: the right to transfer their shares (subject to any restrictions in a company articles of association), the right to attend and vote at company meetings, the right to dividends (dependent on a company profits), the right to a copy of the company accounts or, at least, a summary financial statement. A shareholder has a duty to pay for shares when asked. Shareholders have the additional right to vote on directors salaries. As a new requirement under the Companies Act 1985, companies must produce a directors remuneration report (detailing the grounds for directors pay and how it is linked to company performance) each year on which shareholders can vote - the vote will not require shareholders to specify directors remuneration, but will allow them to express views on the remuneration report.
What are pre-emption rights for shareholders? Pre-emption rights are the rights of existing members to be offered new shares on beneficial terms by that company. The right was introduced to stop existing shareholders having the value of their share holdings diluted by the new shares being issued. Pre-emption rights do not apply to employee share schemes, nor to allotments that are issued as wholly or partly paid-up for a non-cash payment. Also, a private company memorandum or articles may exclude pre-emption rights (but not a public company). Under the Companies Act 1985 a company can pass a special resolution not to apply pre-emption rights, called a disapplication of pre-emption rights. This applies to just one issue only, and a further resolution is needed if similar conditions are to apply to another share issue. A copy of the special resolution must be delivered to Companies House within 15 days of being passed.
The London Stock Exchange is the organisation which provides the principal markets for the issue of, and the buying and selling of, publicly quoted shares in the UK. It brings companies and investors together, provides rules to ensure the markets work efficiently and fairly, and monitors the operation of its markets to ensure that its rules are being obeyed. The Exchange also provides markets in corporate loan stocks, Government (gilt-edged) securities and international securities. Companies whose shares are traded on the Exchange are known, in general, as quoted companies and may be admitted to the main market of listed shares and securities or to the Alternative Investment Market (AIM). Stock broking firms and other securities houses, if they are members of the Exchange may trade directly in shares and securities on the Exchange, on behalf of their clients.
The Exchange makes sure that its quoted companies and firms which are members comply with the Admission and Disclosure Standards or the Rules of the London Stock Exchange, as appropriate. The Admission and Disclosure Standards cover the issue of listed shares and securities, and companies' ongoing disclosure standards towards their shareholders.
The Rules of the London Stock Exchange cover the way shares are traded on the Exchange's markets by firms which are members. They also cover companies whose shares are traded on AIM. A booklet outlines the role of the Exchange and provides guidance on those issues which fall to the Exchange to regulate, and those which may be appropriate for consideration by other regulatory organisations. It details how to make a complaint to the Exchange, and how to take a complaint further should the Exchange response be unsatisfactory.
Corporate Nominee Shareholder Service for Public Records for one year: A nominee is normally a company created for the purpose of holding shares and other securities on behalf of investors. The name of every shareholder of every UK company is recorded in both the company's statutory registers and at Companies House. This information is therefore publicly available. Coddan will act as Nominee Company Shareholder for limited companies on an annual basis. Companies may also wish to keep secret their ownership of development companies, for valid commercial reasons. The nominee shareholder will execute a declaration of trust in favour of the true owner of the shares in which it agrees to exercise all voting rights and otherwise deal with the shares only in accordance with the instructions of the beneficial owner. The name of the nominee shareholder then appears on all public records relating to the shareholding. If signatures or verification documents are required extra charges will apply.
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Private Nominee Shareholder Service for Public Records for one year: A nominee is normally a company created for the purpose of holding shares and other securities on behalf of investors. The name of every shareholder of every UK company is recorded in both the company's statutory registers and at Companies House. This information is therefore publicly available. Coddan will act as Nominee Company Shareholder for limited companies on an annual basis. We will act as a Nominee Shareholder and will provide a Declaration of Trust in favour of the beneficial owner, will ALSO INCLUDE Notarised and Apostilled copy of Nominee Shareholder' passport. Anonymity is assured, as the beneficial owner is not disclosed at Companies House or in the register of members. The nominee shareholding relationship would usually be confirmed by appropriate declarations or pre-configured share transfer documents from the nominee towards the actual clients. The name of the nominee shareholder then appears on all public records relating to the shareholding.
Legal Requirements
Members or Shareholders of a Compny Limited by Shares: The member(s)/shareholder(s) are the person(s) or entities which will, collectively, own the company. In the case of a private company limited by shares, the 'members' and 'shareholders' are one and the same person(s) or entities. The initial member(s)/shareholder(s) of a company are known as the 'subscribers'. The persons who sign the memorandum of association (i.e. the 'subscribers') are deemed to have agreed to become members of the company, and on its registration are required to be entered as members in its register of members. The type of company you are forming, need only have one member. A director or company secretary of a particular company, may also be a member/shareholder of that company. The sole director of a private company may also be the sole member/shareholder of that company. Under the Companies Act 1985, there is no restriction on any or all of the members/shareholders being from an overseas country.
UNITED KINGDOM INCORPORATION SERVICES: PURCHASE OF OWN SHARES IN PRIVATE COMPANIES. WHO CAN OWN SHARES IN A PRIVATE LIMITED COMPANY? WHAT IS A SHARE?
A Share is a token of ownership. A typical start-up company will have 1,000 shares (although they may have many more). Any individual shareholder can have just one, or many shares. A private company is normally restricted to issuing shares to its members, to staff and their families and to debenture holders. However, by private arrangement, the company may issue shares to anyone it chooses. Shares in a private limited company may only be sold or transferred with the permission of the Directors.
Given that the separation between a company and its shareholders is one of the most fundamental principles of company law, a purchase or buy back of own shares - the acquisition by a company of shares in itself - may seem like a slightly odd concept. However, buy backs are common amongst private companies in England and Wales and, despite lengthy procedural requirements, are often relatively quick and inexpensive to carry out.
One of the most common reasons for undertaking a buy back is to return surplus cash to shareholders. Although this could often be achieved by payment of a dividend, a purchase of own shares can have certain advantages. Another common reason for a purchase of own shares is to provide a willing buyer for shares in the relevant company where there is no 3rd party willing or able to acquire them.
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Every shareholder may empower a third person (credit institution, professional shareholder representative or other trustee) to execute his voting right at a general assembly. Many shareholders empower their depository banks to execute their voting rights. Upon taking on the duties of Nominee Shareholder, we would hold your shares on trust in the form of a Nominee Shareholders agreement. Our Nominee Shareholders agreement would serve the purpose of ensuring that your identity as Beneficial Owner(s) is only known to us and not put on public record at the Company's Registry.
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A private company can purchase its own shares either using available distributable profit or in certain circumstances from capital - however the former process is by far the simplest. The most significant procedural requirements where the purchase is being funded from distributable profit are (i) that the company is being funded from distributable profit are that the company has the power to make the purchase in its memorandum and articles of association and (ii) that the purchase is approved by a special resolution of its members (in respect of which the shares to be bought back cannot be voted). The proposed draft agreement for the buy back of shares must also be made available to the members for at least 15 days prior to the relevant members meeting, although it is sometimes possible to circumvent this requirement by the use of written resolutions.
If you want to become familiar with the description and the contents of companies incorporation packages, offered by Coddan and to find above, what kind of service is included in this or that British companies registration package, to get an idea about the price of annual renewal of the service, and about the general legal requirements to the company incorporation within Great Britain, please, select the package you need from the list, situated below the banner. The information in the banner will be renewed according to the package you've chosen.
Live Help ยป Live Help is a real time "chat" feature which enables you to interact with a customer service representative without a phone call. Get answers to your questions while using our website. Clicking the "Live Help" button will start an on-line session with one of our representatives. Live Help is currently available during normal business hours. Outside of the above opening hours our business center will be closed. When you click on the button you will see an e-mail form that will allow you to send us a mail with your questions. Live Help is absolutely free! There are no hidden fees. We offer the service as a courtesy to our website visitors. Dear visitors, while having a chat session with a customer, we are frequently requested to give a piece of advice on tax planning or business structuring. We would like to inform you that it is against our principles to provide online advice pertaining to these issues. The points that may be covered during a session include service description, package or service price, navigation at our website, ways of making an order, methods of payment etc. Yet, if you wish us to provide you with advice on tax or business structuring, you should be aware that this service is chargeable. If you have any questions about the company establishment then please E-Mail or call us: 0800 081 1510 or +44 (0) 207 637 3881, fax: +44 20 7681 3318.
CAN A COMPANY BUY ITS OWN SHARES?
This used to be completely prohibited. Now it is permitted subject to quite restrictive and detailed rules. The problem with companies buying their own shares is that, if completely unrestricted, there is a danger that creditors (and potential creditors) may be misled as to the size of the company's capital. This is part of the wider area of maintenance of capital. This is a very technical area. The rules are set out in some detail below, but a summary of them is:
At common law companies were prohibited from buying their own shares: Trevor v. Whitworth (1887) 12 App Cas 409. Successive Companies Acts have made it possible for companies to buy their own shares in a number of ways. One way is for the company to create redeemable shares and then redeem them. This has long been permitted and redeemable preference shares are quite common. Redemption is subject to the rules on finance mentioned below. A company listed on the Stock Exchange can make a 'market purchase' of its shares through the Exchange, if authorised to do so by an ordinary resolution in general meeting. The shares must be cancelled once bought. This, too, is subject to the rules on finance mentioned below.
Any company may make an 'off-market purchase' of its shares by contract with one or more particular shareholders. The contract must be approved by a special resolution in general meeting. The shares must be cancelled when purchased and this, too, is subject to the rules on finance mentioned next. Redemption, market purchases and off-market purchases are all subject to restrictions as to financing the redemption or purchase. This may come from either distributable profits (i.e. profits which could be paid out by way of dividend) or from the proceeds of issuing new shares. In either case the company's capital is maintained.
Further, a private company (only) may make a 'permissible capital payment' to finance a redemption or off-market purchase. Any available profits must be used first and the payment must be approved by a special resolution and advertised to creditors. Creditors and dissenting shareholders may object to the court against such payment. Shares may be bought back as part of a reduction of capital sanctioned by the court under Companies Act 1985, sec. 135.
In practice, redeemable shares and off-market purchases by private companies are reasonably commonplace. The off-market purchase is useful where a director/shareholder of a successful private company is retiring and selling out his interest, or as a means of buying out a dissenting shareholder. Purchase by the company is an alternative to purchase by the other shareholders in the company. The off-market purchase is also used as part of some management buyouts.
Care must be taken with regard to the taxation of the purchase price. This will be treated as income in the hands of the seller of the shares unless the requirements of Income and Corporation Taxes Act 1988, sec219 are met. Discussion of these tax rules is beyond the scope of this database. The following is a more detailed account of the statutory rules on redemption and buy back.
Redemption of redeemable shares. Companies Act 1985, sec. 159: A company can issue shares of any class which are to be redeemed, at the option of the company or the shareholder, if they are authorised to do so by their articles (Table A, art. 3 does so) and subject to the following conditions: Redeemable shares can be issued only if the company has other shares which are not redeemable. Redeemable shares may not be redeemed unless they are fully paid. There are restrictions on the financing of the redemption. These restrictions apply also to a company purchasing its own shares and are dealt with in detail below.
Shares redeemed must be cancelled on redemption and the amount of the company's issued capital (but not its authorised capital) is diminished by the nominal value of the shares.
Purchase by a company of its shares. A company may purchase any of its shares (whether or not they are expressed to be redeemable) provided it is authorised by its articles to do so (Table A, article 35 does so), and it complies with Companies Act 1985, sec 162-170.
Market purchase. A market purchase is a purchase of shares on the Stock Exchange (and so limited to PLC's). By sec. 166 such a purchase must be authorised by ordinary resolution which may give a general authority to purchase the company's own shares or be limited to shares of a particular class or description. The authority may be unconditional or conditional. The authority cannot last for more than 18 months. It is standard practice in many PLC's to have such a resolution passed at each AGM. Any shares purchased must be cancelled. A market purchase is subject to the rules on finance mentioned below.
Off-market purchase. This is any purchase of shares other than through the Stock Exchange. It can include shares in a PLC bought other than through the market, or any buy-back by a private company. The statutory provisions are to be found in Companies Act 1985, sec. 162 - 170. An off-market purchase may be made only if the terms of the contract of purchase are authorised before the company enters into the contract by a special resolution. In most cases this will be under a contract drawn up for the purposes of the buyback, but it may also be done under the terms of a previously authorised 'contingent purchase contract': a contract under which a company may, subject to any conditions, become entitled or obliged to purchase its own shares.
The member (or his proxy) whose shares are the subject of such a special resolution to approve the purchase of them cannot exercise the votes attached to those shares. The member may, however, exercise any votes on any other shares. Notwithstanding anything in a company's articles, any member of the company (and any proxy) may demand a poll on the question whether such a resolution shall be passed: Companies Act 1985, sec. 1 64 (5). The special resolution will not be effective unless a copy of the proposed contract of purchase, or a written memorandum of its terms if it is not in writing, is available for inspection by members of the company, both at the registered office for at least 15 days before the date of the meeting at which the resolution is passed, and at the meeting itself: Companies Act 1985, sec 164 (6). The shares must be cancelled.
Where a company has purchased its own shares it must, within 28 days, deliver to the Registrar a return (form G169) stating the number and nominal value of those shares and the date they were purchased. A public company is required to disclose the price paid for the shares: Companies Act 1985, sec. 169 (2). The company must keep a copy of any contract to purchase its own shares, or a memorandum of its terms if it was not in writing, at its registered office for 10 years. It must be made available for inspection by members and, if a public company, by any other person.
Financing redemption or purchase of own shares. Subject to the provisions which enable private companies to make payments out of capital in certain circumstances (see below) shares may be redeemed or bought back by a company only out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose: Companies Act 1985, sec. 162, applying sec. 160.
PERMISSIBLE CAPITAL PAYMENTS
Where a private company redeems shares or enters into an off-market purchase for its own shares it will usually finance the transaction out of distributable profits or the proceeds of a fresh issue of shares, but it is possible for a private company to make all or some of the payment for these purposes out of capital if it complies with Companies Act 1985, sec 171 - sec 177. The payment is called a 'permissible capital payment' and it may be made only after profits available for distribution have been used. The procedure for a payment out of capital is as follows:
The directors must make a statutory declaration of solvency that, having made full inquiry into the affairs and prospects of the company, the directors have formed the opinion that, having made the payment, there will be no ground on which the company could be found to be unable to pay its debts, and for the year following that date the company will be able to carry on business as a going concern and be able to pay its debts as they fall due. Annexed to the statutory declaration must be a report by the auditors that they have inquired into the company's state of affairs and they are not aware of anything to indicate that the opinion of the directors in the declaration is unreasonable.
The proposed payment out of capital must be approved by a special resolution passed within a week after the date of the statutory declaration. The statutory declaration and auditors' report must be available for inspection at the meeting. The voting rights attached to the shares which are the subject of the special resolution cannot be exercised in respect of the resolution. Within one week of the special resolution, the company must advertise the payment in the London Gazette and either in a national newspaper or by writing to each of the company's creditors. The actual payment out of capital can be made only between five and seven weeks after the date of the special resolution.
Within five weeks of the special resolution, any member of the company (other than one who consented to or voted in favour of the resolution) and any creditor may apply to the court for the cancellation of the resolution. On hearing an application the court has wide powers to confirm or cancel the resolution on such terms and conditions as it thinks fit. If the company is wound up within one year of a payment for shares out of capital and the assets are insufficient to meet the company's liabilities the vendor of the shares and the directors who made the statutory declaration of solvency will be liable to contribute up to the amount of the capital payment. A director can escape liability by showing reasonable grounds for the opinion expressed in the statutory declaration.
WHAT ARE SHARES?
A company set up to run a business will usually have money (and perhaps other assets) put into it by the shareholders in return for shares. E.g. A, B and C set up a company and decide that they will each put in £1,000 as share capital. The simplest way for this to be represented is for the company to issue 1,000 £1 ordinary shares to each of the three shareholders. The company's issued share capital will then be £3,000 divided into 3,000 shares of £1 each. It is not the only way. An alternative would be for the three shareholders to take one share each and to lend the money to the company.
Share capital. The capital of a UK company limited by shares has to be divided into shares of a fixed amount (usually £1). Because the company is a separate legal entity the company is regarded as selling its shares to the (prospective) shareholders, who pay for them in cash or other assets. Because the creditors of the company can usually only look to the company's assets for payment, share capital is locked into the company and can be returned to the members only subject to strict rules (maintenance of capital). The shareholders are the members of the company and are the owners of it.
Nature of shares. Shareholding is a complex system of joint ownership. The shareholders jointly own the company. At the same time a share is itself an item of property which (subject to the company's articles) can be transferred by sale or gift. In return for investing in a company a shareholder gets a bundle of rights in the company which may vary according to the type of shares acquired. Most companies only have one class of shares (ordinary shares) but the law in the UK is extremely flexible and allows any classes of shares to be created. This is done by setting out the different rights attached to the various classes (usually in the company's articles). What rights are attached to the different classes of shares is essentially a matter for the company to determine. The main rights which usually attach to shares are:
To attend general meeting and vote. Typically shares carry one vote each but there may be nonvoting shares or shares with multiple votes. Some shares may carry the right to vote only in particular circumstances. To a share of the company's profits. The distribution of profits is paid by means of a dividend of a certain amount paid on each share. A dividend may be paid only if the company has made profits and to the extent that it decides to distribute them. (See Companies Act 1985, sec 263-281).
To a final distribution on winding up. If the company is wound up and all the creditors are paid the remaining assets are available for division among the members. This may be in two stages: (1) a return of capital; (2) distribution of surplus capital. Some shares may be given a priority as to one or both of these. That the company be run lawfully. i.e. in accordance with the Companies Acts, the general law and the company's constitution. In most circumstances only the members of the company will have the legal right to sue to make the company act lawfully, and even they may be restricted in their ability to sue under the common law rule in Foss v Harbottle. This is a complex area beyond the scope of this database. For legal definitions of shares, see: Borlands Trustee v. Steel Bros. (1901) 1 Ch 279 at p. 288; C.I.R. v. Crossman (1937) AC 26 at pp. 40-41, 51-52, 66.
WHAT IS AUTHORISED (OR NOMINAL) CAPITAL?
A company's authored or nominal capital must be stated in its memorandum of association. It is the maximum amount of share capital the company can issue (unless it goes through a procedure to increase the figure). authorised capital is one of the items that must be included in the memorandum (CA 1985, sec2(5)). It must be stated as a sum of money divided into shares of a fixed amount, e.g. 'The company's share capital is £50,000 divided into 50,000 shares of £1 each.'
(The authorised capital provisions in the Act are a hangover from the days when stamp duty was paid on registration of a company's memorandum. The higher the capital, the higher was the duty payable. The practice of setting up companies with a capital of £100 was a reflection of the fact that this was the amount at which higher stamp duty started to apply. No stamp duty is now payable on authorised capital, but the statutory provisions are unchanged and many people still set up £100 companies. There is now little point in restricting authorised capital. The figure should be at least sufficient to meet the company's foreseeable share capital requirements.)
A private company can have an authorised capital of any amount. A public company must have an authored capital of at least £50,000 (CA 1985, sec. 117). In either case the capital can be divided into shares of any value (though £1 is by far the commonest amount). The shares need not all be the same amount, e.g. the capital could be £100,000 divided into 50,000 shares of £1 and 100,000 shares of 50 pence. In the case of a private company the capital need not be denominated in sterling, but may be in any currency such as $US. The authored capital is simply an upper limit to the amount of shares the company can issue. There is no requirement for the company to issue all its authored capital and the figure has no implication for the liability of the members. E.g. a company may have an authorised capital of £250,000 divided into 250,000 shares of £1 each, but only ever issue, say, two shares. The shareholders' liability is to pay the company for the two shares issued. If a company wants to issue shares beyond its authored capital, the figure must be increased. Unless the company has some special restriction in its articles this can be done by an ordinary resolution in general meeting: CA 1985, sec121; Table A, art. 32.
HOW MANY SHARES SHOULD A COMPANY HAVE?
There is not a simple answer to this. It depends on the circumstances. A company set up to run a business will usually have money (and perhaps other assets) put into it by the shareholders in return for shares. E.g. A, B and C set up a company and decide that they will each put in £10,000 as starting capital. The simplest way for this to be represented is for the company to issue 10,000 £1 ordinary shares to each of the three shareholders. The company's issued share capital will then be £30,000 divided into 30,000 shares of £1 each. To do this, there must be authorised capital of at least £30,000 and the shares must be issued by the correct procedures.
Putting all the money in as share capital is not the only way. An alternative would be for the three shareholders to take one share each and to lend the money to the company. In this case the company will have an issued share capital of £3, divided into three shares of £1 each. In many cases, either solution would be appropriate. In either case each shareholder is an equal one-third owner of the business. They have one-third of the votes each, will receive one-third of any dividends and are entitled to a one-third share of any net assets remaining if the company winds up. There are, however, striking legal, taxation and practical differences between the two approaches.
If the £30,000 is put is as share capital, it is effectively locked into the company and cannot easily be returned to the shareholders. Companies can buy back their shares but only in quite restricted circumstances and subject to quite strict procedures. Money loaned to the company can be repaid to the lenders at any time. If the company fails, the lenders may claim in the liquidation for the return of their money as creditors of the company. If the loans have been secured by the company issuing debentures to the three shareholder/directors, they may rank as secured creditors, which will put them in a more advantageous position than the ordinary creditors.
There may also be a tax advantage in putting the money in as loans. When the company starts to make money, the loans can be repaid without there being any tax payable by the lender on receiving the repayment. Further, interest may be paid to the lender whether or not the company has made profits. For all these reasons, money put into a company as capital is often put in as loans rather than share capital. There may, however, be good reasons for committing the money as share capital. A company capitalized at £30,000 is clearly more substantial than one with a nominal £3 share capital. The amount of share capital appears on the public record at Companies House and it may be important to display the substance of the company to potential creditors and other business contacts. In some cases, banks or investors may want to see capital committed as share capital simply because it is then 'locked in'.
There may be good reasons as between the three shareholders why they should want to see that the money committed by the others is in the form of share capital. At a more sophisticated level, where substantial investment is being put into a company, the investors may well want a package of loans and shares, perhaps requiring different classes of shares to protect different aspects of their investment and to give them an appropriate package of rights in the company. The decision as to the capitalization in such cases of a company should usually be taken with appropriate legal and accountancy advice.
WHAT ARE CLASSES OF SHARES?
A company can create different classes of shares by giving them different rights. If a company has only one class of shares they will be ordinary shares and will carry equal rights. Different classes of shares within a company are typically created by varying the voting, dividend and capital rights attached to them. The following are descriptions of some typical classes of shares. There are no legal definitions of such classes and shares with the same name (e.g. preference shares) will have different rights in different companies.
The rights attaching to shares will usually be set out in the company's articles (the better method) or by a resolution passed under article 2 of Table A. This provides: Subject to the provisions of the Act and without prejudice to any rights attached to any existing shares, any share may be issued with such rights or restrictions as the company may by ordinary resolution determine. The resolution may be passed within a resolution increasing authorised capital, or giving authority to directors to allot under Companies Act 1985, sec. 80, or by other resolution of the general meeting. The terms attaching to such shares must be registered at Companies House (Companies Act 1985, sec 128).
Preference shares. These will usually have a preferential right to a fixed amount of dividend, expressed as a percentage of the nominal (par) value of the share, e.g. a 1,7% preference share will carry a dividend of 7p each year. It is, however, still a dividend and payable only out of profits. The dividend may be cumulative (i.e. if not paid one year then accumulates to the next year) or non-cumulative. The presumption is that it is cumulative. The dividend is usually restricted to a fixed amount, but alternatively the preference share may be participating, in which case it participates in profits beyond the fixed dividend under some formula. Preference share are often nonvoting (or nonvoting except when their dividend is in arrears). They may be given a priority on return of capital. Often they will not be entitled to share in surplus capital.
Deferred ordinary shares. Shares on which no dividend is paid until other classes of shares have received a minimum dividend. Thereafter they will usually be fully participating.
Management shares. A class of shares carrying extra voting rights so as to retain control of the company in particular hands. This may be done by conferring multiple votes to each share (e.g. they carry ten votes each) or by having a smaller nominal value for
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Corporate Nominee Shareholder Service for Public Records for one year:
A nominee is normally a company created for the purpose of holding shares and other securities on behalf of investors.
