Conversion of ordinary shares to A and B

Conversion of ordinary shares to A and B

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Two unconnected shareholders in a company have held ordinary shares in the proportion 85:15 for many years.   If one share out of the 85 is converted or redesignated as an A share and one share out of the 15 is converted into a B share, what legal aspects need to be covered with companies house? I do not propose to alter any voting rights, rights on a winding up etc so there is no transfer of value.  Ignoring the income shifting/settlements legislation and tax risks for the moment, I cannot see any forms at companies house that seem to cater for this.  I assume a resolution will be required and an allotment of two new classes of share but I am struggling after this.  Any help would be appreciated. 

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Euan's picture
By Euan MacLennan
07th Jun 2011 11:09

Seems rather complicated

You are proposing to have 98 ordinary shares, 1 A ordinary share and 1 B ordinary share.  If that is what you really want, I would suggest calling them A, B & C ordinary shares.

As it is not a new CA 2006 company, the final clause in the original Memorandum specifying the authorised shared capital and its division into ordinary shares of £1 each is now (post CA 2006) deemed to be incorporated in the Articles.  You will need a Special Resolution to amend the Articles to allow for different classes of shares (and at the same time, remove the reference to the maximum authorised capital which is not relevant under CA 2006).  You then need to file both the duly signed Special Resolution and a copy of the amended Articles at Companies House.

You will then need to pass a Special (I think) Resolution to re-designate the shares in issue, which is not a new allotment, and to issue new share certificates duly executed by the signature of two officers of the company.  Notify the changes on the company's next Annual Return.

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By brownbowl
07th Jun 2011 11:50

Cheers!
Fabulous - thanks Euan - just what I was looking for! My thought process was to minimise the number of new share classes hence the plan to just add A and B. Are you saying redesignate 98 of the ord. shares as A shares, 1 of the ord. shares as a B and 1 as a C? (By way of background: The directors have always taken equal salaries and are in effect a 50:50 team. The plan is therefore to pay A and B dividends at different rates but not be restricted by the 85:15 allocation [dividends being more tax efficient].)

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Euan's picture
By Euan MacLennan
07th Jun 2011 12:00

In that case ...

I would re-designate 85 shares as A Ordinary and 15 as B Ordinary shares.

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By steveoneill
07th Jun 2011 16:10

A little bit more than that

New quite as straight forward as first mentioned, you also have to file Form SH08 for the re-designated shares and their respective new classes. You will also have to include in the articles clauses for a cap on the directors authority to allot shares for a period of 5 years stating the value for each share class for which is the total that can be allotted. I would also put a clause in about directors’ rights for paying different dividends. You may also want to consider removal of pre-emption rights for allotments.

You written resolutions would be two fold, one for the adoption of the articles and one for the re-designation of the issued shares.

So you would file

New articlesTwo written resolutions of members andForm SH08

Steve O’Neill
Business Tax Centre Ltd

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By TerryD
23rd Sep 2013 15:30

I don't think so

Form SH08 is simply to change the name of the shares, and it has to apply to all shares of that class (e.g. changing all existing ordinary shares to A ordinary shares). It does not allow you to simultaneously change the rights attaching to the shares. This can be done (SH10), but, again, this change has to apply to all shares of that class, not just some of them.

I think the only way to achieve what you want is to allot new shares (say one A share and one B share), with these each having their own dividend rights (which wiil need to be spelt out in the "prescribed particulars" section on SH01 - something like the holders of A shares "..... rank equally for dividends voted on the A shares, but not for those voted on the ordinary shares or on the B shares.....". Then you would use these A and B shares as the divedend paying vehicle instead of the ordinary shares.

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