Shares Flashcards
Share Transfer
- Check the Articles for a specific procedure or restrictions
- Check if there is a share purchase agreement in place - it is common practice.
- Transferor (company) to fill out a stock transfer form (STF) for the transferee, complete it and send it together with the share certificate to the transferee.
- Transferee needs to check if they need to pay tax. If shares are valued over 1,000 GBP, then 0.5% stamp duty tax applies. This needs to be paid to the HMRC and once the payment is accepted, the HMRC will send the stamped confirmation to the transferee. Transferee has 30 days to pay stamp duty tax after the STF is signed and dated.
- Transferee submits the documents (STF, stamp duty tax confirmation and share certificates) to the company for registration. The directors have 2 months to submit reasons for refusal. If 2 months pass by with no refusal, the company must register the transferee as a member.
- Once registered, the Register of Members needs to be updated (within 2 months) and Register of People with Significant Control (PSC) (within 14 days).
- Then the company should issue new certificates to the new member and cancel old ones (within 2 months).
- Notify Registrar of any changes to the Registry of PSC within 14 days.
If the legal transfer does not take place?
Beneficial ownership with the new transferee, the old owner holds their shares on trust on their behalf. They must vote in accordance with their directions and collect dividents on their behalf.
Remedies to TRANSFEREES in case of refusal to register them as members
- Ask for further information
- Transferor may grant a POA to the transferee
- Apply to the court to rectify this situation if you believe approval was unreasonably withheld
Allotment of shares
The right to instruct issuance of new shares in a private limited company.
- Check if there is a limitation on allotment of shares in the Articles. MA do not specify a restriction on alloting shares.
- Check how many classes of shares the company has.
There are two options to issue shares:
1. If the company has only 1 class of shares - s.550 CA - DIRECTORS can vote on allotment on a board resolution (>50%).
- If the company has multiple classes of shares - s.551 CA - allotment must be voted on by shareholders via an Ordinary Resolution (>50%). Subject of vote: number of shares and max duration of that authority.
- Check if the statutory pre-emption rights under s.561 CA apply or if they are extended in the Articles
Statutory pre-emption rights under s.561 CA
Right of first refusal to existing shareholders when a company allots fresh shares.
Requirements:
-Ordinary shares
-Consideration is fully in cash
-Not disapplied by the Articles
Then when pre-emption rights are applicable:
1. Offer newly allotted shares to existing shareholders on the same terms for an least 14 days
2. Ask shareholders who do not want them to sign a letter of waiver of rights
3. Disapply pre-emption rights by changing the Articles via a Special Resolution (at least 75% votes in favour)
Procedure of allotment
- Board resolution - voted by directors (>50%)
- Send a clear notice of 14 days to SHs to hold a GM OR send a written resolution
- Ordinary resolution (>50%) to approve/refuse allotment
- If approved, shares allotted
- Share new cerificates to allotees within 2 months. Update the Register of members within 2 months, and Register of PSC within 14 days + notify the Registrar of that change.
- Notify Registrar of the OR to allot shares within 15 days.
Reduce Share Capital
Why?
-to distribute dividends to shareholders
-to invest money in a non-cash asset
-to cover for accumulated losses
How?
-Check Articles if there is a specific procedure or if it’s prohibited
Two options:
1. via Solvency Statement
2. Court
Solvency Statement Procedure
- Board meeting to vote on reducing share capital (>50%) and on the Solvency statement.
- Directors to prepare a Solvency Statement specifying that the company can pay its debts in the next 12 months and can continue as a going concern. It has to be signed and prepared by all directors and available to shareholders to inspect at least 15 days before a GM or before/together with the circulated written resolution.
- Either a GM or written resolution to be held - Special Resolution (at least 75% votes).
- Update the balance sheet to reflect the reduction.
- File SH19 - a statement of capital, the OR and the Solvency Statement + a compliance statement by all directors should be filed with the Registrar within 15 days
Share buyback (Private Company)
A limited liability company can purchase their shares back from a specific shareholder who is willing to sell them to the company. It is usually done when the company doesn’t want an external investor to come in. Increased value per share for existing shareholders.
Financing a share buyback
- Issuing fresh shares to finance the buyback
- Use distributable profits
- De minimis exception - up to 15,000 GBP or 5% of paid up share capital whichever is lower
- Out of capital via the strict procedure Part 18 Chapter 5 of CA
De minimis process
- Board meeting to vote on and approve the buyback.
- Hold a GM or circulate a written resolution to members to approve the buyback agreement.
if via GM - Buyback agreement needs to be available for inspection by shareholders at least 15 days before the GM. No GM on short notice for this procedure.
If via Written Resolution - circulate a copy of the buyback agreement together with the resolution or before circulating it.
Approval - either way via Ordinary Resolution.
- If approved, repuchase the shares from ths shareholders and cancel them / or keep them as treasury shares.
- Reflect the reduced capital in the balance sheet.
- Update the Register of Members’ Resolutions within 15 days, file a form reflecting the repuchase of shares (Form SH03) with the Registrar within 28 days.
If the shares are to be cancelled, file Form SH06 with a notice of cancellation together with a statement of capital within 28 days with Registrar.
- The buyback agreement, the resolution and the minutes are kept for 10 years.
