Share capital changes

Share capital changes

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The shareholders of a company are considering the issue of further shares to themselves with a view to subsequently selling part of these.
What steps must they take to:
(a) increase the authorised share capital
(b) transfer the shares to the existing shareholders

What are the Stamp Duty implications and the CGT consequences?
David

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By neileg
08th May 2002 10:40

What to do
The company has an authorised share capital, initially set in the memorandum of association. Some or all of this will have been alloted (aka issued) to shareholders. The company can allot more shares up to the authorised limit. If the authorised limit is too low, this can be increased by a shareholders' resolution. Usually this is an ordinary resolution, but the articles of association may require a special or extra-ordinary resolution. A Companies House form 123 must be filed to show the increase.

An allotment is usually carried out by the directors on the authority of an ordinary resolution of the shareholders, although the articles may provide for other authorisation. A copy of any such resolution must be filed at Companies House. When the shares are alloted, a form 88(2) must be filed.

I'm not a tax expert, but the tax situations broadly is as follows:
No stamp duty is payable on the allotment of shares, only on the sale of shares between shareholders.
No CGT or income tax is liable on the issue of shares in the same proportions as the existing shareholdings, ie no shift in control of the company.

If the intention is to bring in a new shareholder to the company to provide new funds, it is more tax efficient to issue fresh shares to the new shareholder from the company, rather than issue them to the existing shareholders who then sell the shares and loan the money back to the company. Provided the new shareholder is not connected with existing shareholders, and the share price is an arms length value, there should be no CGT, income tax or stamp duty payable.

www.companieshouse.gov.uk will give you guidance on the form filling.

Warning: it is fairly easy to get the process messed up for tax purposes. It is well worth taking professional advice from an accountant or solicitor well versed in this type of capital issue.

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