Shares Flashcards
Share Certificates- Process:
Companies required to issue within 2 months after issue of shares or when transfer documents (for a transfer of shares) received by company.
- every member entitled to certificate free of charge
- sealed or executed under signature
- company not bound to issue more than one certificate for joint shareholders
- company may require evidence and indemnity if certificate lost or destroyed (but not if defaced and returned for reissue)
- share certificate only prima facie evidence - register of members provides definitive evidence of holding
- Listed companies: must also comply with Listing Rules - certificate to state country of incorporation and authority under which company incorporated; detail any preferential rights on reverse of certificate; number of shares to be shown twice on certificate (two different formats)
- Minimum contents:
- serial number
- company name & number
- name of registered holder
- number and description of shares
- date of certificate
Lost Certificates- Process:
- Note in register - ask member to conduct thorough search
- Request executed indemnity guaranteed by the bank or insurance company - to protect company against fraudulent misuse of lost certificate; company may also request statutory declaration regarding circumstances of certificate’s loss
- Issue duplicate, marked ‘Duplicate’
- Enter details of original certificate on ‘stop list’
- Ask member to return lost certificate if subsequently found
Ownership issues- Process:
- Change of name - member submits share certificate with evidence of change of name, register of members amended, share certificate amended or replaced
- Change of address - signed by member (if possible); also, review recent mailings
- Nominee shareholders - s126 prohibits entry of a trust onto register of members (for E&W registered companies). Company cannot, therefore, recognise a beneficial interest under a trust - commonly dealt with by placing nominee information against holder
Share Transfer- Process:
- The seller of the shares completes and signs the stock transfer form- J30, if more than one class of share is being transferred, a separate stock transfer form should be completed for each class.
- Where necessary, the buyer signs the stock transfer form. The buyers name and address are included on the Stock Transfer form. A signature is required when shares are unpaid or partly paid as they carry with them a liability- J10 used.
- If required, the form is sent to HMRC for stamping and stamp duty is paid. Stamp duty ad valorem at the rate of 0.5% of the value, where the consideration payable is £1,000 or more. Stock transfer form to be completed and sent to HMRC with payment of the stamp duty addressed to HMRC and a return address. Failure to pay may result in penalties and interest being applied to the late amount.
- The company receives and checks the transfer documents
- The directors decide whether to approve the transfer and document their decision
- The company updates its statutory registers, cancels share certificate(s) and issues new certificate(s) required
- Either at the same time or later, the transfer is confirmed to Companies House as part of a confirmation statement
Allotment of Shares – Process:
- Application form- available for those wishing to subscribe for shares, demonstrates their agreement to become a Member under s.112 and is used to collect necessary information for entry into ROM. Only public Companies can issue share to the public s.755,756.
- Completed Application form returned to the Company- along with a cheque or proof of bank transfer for the payment in full or part for the shares. The application forms are checked for completeness.
- Board Resolution (BM)- approve the applications, issue of shares, issue of share certificates and updating the ROM.
- Share Certificates- Issues within 2 months from the date of allotment s.554
- Return of Allotments filing- Form SH01 filed with the Registrar within one month of the date of allotment s.555
- Listed Companies- required to send shareholders an explanation with resolution to grant directors authority to allot shares- special resolutions passed at AGM routinely to disapply pre-emption rights:
- Complete Applications for Official List and LSE
- Provide Explanatory letter with reason for issue
- Pass Board Resolution confirming allotment
- Letter to LSE confirming not offered to public
- Stock Exchange announcement.
Increase in Capital- Process
- Refers to the nominal capital in the memorandum.
- Increase is possible only if authorised by Articles.
- Increase is necessary when company is issuing further shares.
- Authority needed is ordinary resolution of members in general meeting.
- Copy of resolution must be delivered to Registrar within 15 days, along with the appropriate form.
Capital Reduction- Process
Possible if:
- Articles permit
- Special resolution is passed
- Consent of court is obtained- Necessary for PLC
The reduction may be for any reason, including:
- To extinguish or reduce the liability of members for shares not fully paid up
- To cancel paid up capital no longer represented by available assets
- To return paid up capital to shareholders in excess of needs of company
Process:
- Board approval to propose the share capital reduction
- Where the reduction needs to be confirmed by the court the directors then need to obtain the necessary court order.
- Where the reduction is to be supported by a solvency statement the directors need to provide the solvency statement in accordance with sections 642 to 643 of the Companies Act 2006.
- Passing of a special resolution approving the share capital reduction, 15 days from the solvency statement.
The company must within 15 days of the passing of the resolution file the following at Companies House:
- Form SH19, which sets out the statement of capital after the share capital reduction has been completed;
- A copy of the shareholders’ special resolution;
- The directors’ statement of solvency; and
- A directors’ compliance statement, in accordance with section 644(5) of the Companies Act 2006, that the necessary solvency statement was made not more than 15 days before the date of the special resolution and was provided to the members before the passing of the resolution.
Purchase of own Shares- Process
Companies may purchase their own fully paid shares (s690), subject to articles. Only out of distributable profits or proceeds from fresh issue of shares.
Certain circumstances private companies may purchase out of capital
- must be paid for on purchase
- could be advantageous, such as where unmarketability of unquoted shares can be a burden (also, for example, purchasing shares of retiring proprietor, dissident shareholder or from estate of deceased shareholder, or to reduce likelihood of takeover bid)
- following purchase, must be at least one member with non-redeemable shares
- only fully paid shares can be repurchased
Off-market purchase procedure:
- Authorised by ordinary resolution
- Copy of contract, or memorandum, to be at registered office for inspection by members at least 15 days prior to meeting
- Shareholders affected by contract may not vote on the resolution
- Following purchase, file form SH03 with Registrar within 28 days of delivery of shares to company - stamped by HMRC as stamp duty payable
- Company may wish to vary or revoke existing contract authorising off-market purchase
- Can make off-market purchase for employee share scheme
- Private company can make payment out of capital in relation to purchase of own shares for employee share scheme - special resolution required and a solvency statement (made within 15 days of resolution)
- Normally limited company purchases own shares out of distributable profits or from fresh issue of shares - but private companies (1) can purchase out of capital subject to directors’ statement, auditor’s statement, special resolution required, publish in The Gazette within a week; and (2) small repurchases permitted out of capital and cash (the smaller of £15k or 5% of share capital), subject to Articles
Market purchase procedure:
- Notify UKLA as soon as possible after decision to purchase
- Often standing item on listed company’s AGM agenda
- Ordinary resolution required - but institutional investors request special resolution with additional detail
- Should not purchase shares if it would contravene Market Abuse Regulations
- Notify purchases to an RIS by 7.30am the day after
- Send form SH03 to HMRC with cheque for required stamp duty (0.5% on the consideration, rounded up to nearest £5, minimum £1,000) - stamped form returned to company for filing with Registrar within 28 days of delivery of shares
Considering a Rights issue in Shares
The first step when considering a rights issue is to check whether the directors have been authorised under s.551 Companies Act 2006 to allot additional shares. If they are not, authority must be sought via an ordinary resolution of the members.
The purpose of a rights issue is to invite the existing shareholders to provide additional funding for the company by way of share issue. A rights issue is therefore an issue of shares to the existing shareholders pro-rata to their existing holdings. This is also known as a right of pre-emption on allotment. Some overseas shareholders may reside in jurisdictions where participation in the rights issue might breach local legislation. Such shareholders will be ineligible to participate in the rights.
In respect of ensuring that all of the shares being offered will be subscribed, there are two primary matters to consider. Firstly, shareholders may be offered the opportunity to acquire additional shares in excess of their entitlement, representing entitlements not taken by other members. Alternatively, the issue may be underwritten- specialist financial institutions who will guarantee to take up any shares which are not subscribed in return for a fee.
Being Paid in Shares for Land
As with a rights issue, the company’s first step should be to ensure it has the requisite authority to allot shares under s551 of the Companies Act 2006. Section 565 Companies Act 2006 provides an exception to pre-emption rights in so far as the issue is for non-cash consideration and pre-emption rights will not need to be disapplied. Sections 593 – 597 Companies Act 2006 deal with the issue of shares for a non-cash consideration and provides that a public company may not allot shares for a payment other than cash, unless the consideration has been valued by an appointed valuer within the six months prior to the allotment, and a copy of the valuation sent to the proposed allottee. The valuation report must be made by an independent person who would be qualified to be an auditor of the company or by another independent person considered to have the required knowledge and experience regarding the valuation. The valuer’s report must be sent to the Registrar of Companies when the return of allotments form SH01 is filed. As this is a transaction for land and property, a formal contract must be drawn up for the transfer in exchange for the allotment of the shares. The contract should also be sent to the Registrar with the return of allotments.
What is the difference between DRIP and SCRIP Dividends and process to introduce them?
Scrip dividends are new, fully paid-up shares issued instead of a cash dividend to shareholders.
- Check Articles of Association and obtain shareholder approval: If a company has power by its Articles simply to pay dividends or if its Articles are silent on the matter, it may distribute dividends only in the form of cash. Issuing shareholders with scrip dividends results in an allotment to shareholders otherwise than in proportion to their existing shareholding (that is, to only those shareholders who wish to receive the scrip). For this reason, shareholder authority should be sought and Public Company Model Article 76 permits an ordinary resolution to be passed in general meeting to give the board power to offer shares instead of a cash dividend.
- Set the record date and determine the price for the shares: The ‘record date’ is the date used to determine the members eligible to receive a dividend. The record date for the cash dividend payment will also be used to set the entitlement for a scrip dividend. A price in respect of the shares to be issued under a scrip dividend must be calculated and this is done with reference to recent share issues or market prices, as determined by the directors.
- Prepare a shareholder circular and a form of election: A letter must be sent to shareholders giving the price of the new shares and explaining what action is needed if shareholders wish to elect to take a scrip dividend instead of cash. A form of election should accompany the circular to allow the shareholder to select the scrip dividend if desired.
- Prepare dividend warrants and tax vouchers: This will show the value and number of scrip dividend shares and tax paid in respect of the dividend.
- Update statutory registers, issue share certificates and make appropriate statutory returns: The register of members must be updated and new share certificates issued within the required time frame. Form SH01 must also be filed with the Registrar of Companies within one month of allotment. Also a listed company must apply to UK Listing Authority (UKLA) and the London Stock Exchange for the new shares to be listed and admitted to trading and dealing.
Relevant comparisons between a scrip dividend to a DRIP:
- scrip dividends involve the issue of new shares, whereas a DRIP involves the purchase of existing shares in the market. As such, with a DRIP there is no dilution of the company’s issued share capital;
- a company’s Articles must provide for a scrip dividend and require shareholder authority (in view of the allotment of new shares) but board approval will suffice for a DRIP;
- for the shareholder, a scrip dividend allows the holder to build up their holding without incurring brokerage expenses and stamp duty. Such costs are incurred with a DRIP;
- for the company, a scrip dividend allows the company that money otherwise distributed in a DRIP to be retained in the business
