Share reorganisation: Get the details right
Companies often need to adjust their shareholdings and capital structures to cope with a variety of situations. Jennifer Adams provides step-by-step guidance on the main procedures.
Most private companies start their lives by issuing a nominal number of shares of a nominal value. As firms grow and evolve, the number of shares may need to be increased or even reduced a number of reasons:
- A rights issue to generate more capital
- To reflect the correct position of the company’s balance sheet; bonus (capitalisation) issues are used when a company has excess profits that need to be retained for future use rather than distributed as dividends.
- Private companies sometimes issue bonus shares in conjunction with rights issues. With a straight bonus issue the ratio of the number of shares held by each shareholder remains, unlike a rights issue, where the investment is reduced. Issuing bonus shares with a rights issue can be a way of increasing the holding of those shareholders who do not or cannot take advantage of the rights issue.
Register or log into AccountingWEB.co.uk to see the full article, which covers:
- Bonus share issuing procedure
- Reasons for a reduction
- Reducing share capital procedure
- Companies House requirements
- Final points
Jennifer Adams FCIS TEP ATT is a freelance writer and author specialising in tax and company secretarial issues, and can be contacted at Abacus Business Solutions.