Converting shares from one class to another

Converting shares from one class to another

Didn't find your answer?

Hope someone can help as I'm simply going round in circles on this.

Company has 90 A (ord) shares owned by Bill and 10 B (non-voting) shares owned by Ben. All shareholders desire and agree that Bill would like to convert 10 of his A shares into B shares and then transfer those shares to Ben for nil consideration. 

The end result would be 80 (ord) shares owned by Bill and 20 (non-voting) shares owned by Ben.

Can anyone throw any light on what form (if any) needs to go to Companies House regarding the conversion of 10 A ords into 10 B non-voting shares? Form SH08 doesn't seem appropriate as it is only some of the A shares that are being converted, not all of them.

I've searched high and low but can't seem to find advice on this particular situation. 

Thanks in advance for any illumination.......

Replies (7)

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By DKB-Sheffield
02nd Jan 2015 00:04

SH08 - definitely not

SH08 is to vary the name of a class of shares and hence is not used in this situation. Furthermore, a simple "swap" of class is not possible as the process is to return (and cancel) the A shares before allotting 10 new B shares.

It's a bit fiddly but... the way I see this is that there is:

1. A return of 10 A Ordinary shares back to the company
2. An allotment of 10 B Ordinary shares to Ben

As a quick fag-packet answer, I would therefore say:

1. a. Special resolution cancelling 10 A Ordinary shares
    b. SH03 purchase of 10 no. of own A Ordinary shares (£Nil consideration)
    c. SH06 cancellation of 10 no. A Ordinary shares

2. a. Special resolution allotting 10 B Ordinary shares
    b. SH01 return of allotment of shares (including statement of capital)

As I say, this is a fag-packet summary. You must review your articles, any shareholders agreements (if relevant) and check that the above is wholly applicable to your circumstances before acting.

 

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By TerryD
05th Jan 2015 17:37

I agree, but...

The above is correct - CA2006 does not provide a mechanism to redesignate part of a class of share, only the whole class. But nor does it state that you can't do it! The only time redesignation is mentioned is s. 636, which simply says that if you redesignate a class of share, you must tell the Registrar - and SH08 arises out of that.

However, many people do use SH08 to achieve what you want to do, writing in something like "10 out of the 90 issued A Ordinary shares". Whilst I feel that this is incorrect, you will get away with it - but if you do that, I would recommend a belt and braces approach to the resolutions, spelling everything out and get everybody to sign everything.

Don't forget, though, that having redesignated, you will also need to vary the class rights because all you will have done so far is change the name of 10 shares - at this stage, they still have the original rights of the A shares. So you then need SH10 to vary the rights of these new B shares to become pari passu with the existing B shares.

As an aside, if you follow the more correct procedure outlined above, then my preference is for a section 641 - 644 reduction of capital rather than a purchase of own shares (which requires the creation of a capital redemption reserve). This requires a special resolution, solvency statement, directors' s.644(5) statement and form SH19.

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By DKB-Sheffield
05th Jan 2015 21:43

I agree with Terry

Hi jacks_cf,

I agree with Terry's suggestion for s 641- 644 capital reduction. However, in either case (and whichever route you take), may I suggest that you consider employing the services of someone who specialises in corporate structure?

It needn't break the bank and will certainly avoid any cost further down the line (or embarrassment if this is a client of yours you are talking about) if you get it wrong (forms, notices, resolutions etc.)

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By User deleted
07th Jan 2015 23:03

Thanks guys! Very useful and informative. Client has been advised accordingly.

Thanks again

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Replying to John Stone:
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By HeavyMetalMike
08th Jan 2015 09:49

pay a "formation agent" this

pay a "formation agent" this sort of thing just £95?

plus your time in printing and posting to client.

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Portia profile image
By Portia Nina Levin
08th Jan 2015 11:11

It is just a simple reorganisation

Today there are 90 A ords and 10 B ords. Tomorrow we will pick 10 of Bill's A ords and reclassify them as B ords and Bill with give those to Ben. Get a resolution signed by Bill and Ben to reclassify the shares.

No new class has been created. The rights of neither class have been varied. There has been a reorganisation, such that 10 shares have moved from one class to the other with the agreement of all involved.

The share capital has not changed. Assuming that they are all £1 shares, it is £100 before and £100 after.

Return the particulars of the changes to the 10 A ords to 10 B ords on form SH10.

Nobody has lost anything. Right or wrong, nobody is going to complain. Move on.

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By TerryD
08th Jan 2015 12:51

Pragmatism rules?

Portia is quite correct that her method will achieve the results that the participants want to achieve, but I reiterate: make sure that the minutes spell out in detail what is being done and get everybody to sign everything so there can be no comeback later. I'm not sure that form SH10 (variation of class rights) is the correct one to use, but as long as a form of some kind is filed it probably doesn't matter.

It's just that some people get palpitations and start waking up at night in a cold sweat when they do (or advise to be done) something that seems to be not quite in accordance with the law that governs what they're trying to achieve......

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