Introduction
This article is an introductory guide to shares, which is an extensive topic. If ever you need legal advice, we shall be happy to oblige. Just send us a message or learn more about our advice service.
This article explains the basics of company shares, otherwise called ‘stock’. It will be useful reading for all shareholders and directors associated with companies incorporated in England, Wales or Scotland with a share capital, whether private or public. The article tells explains the cancellation of shares; types of shares and share transfer.
For more on types on share capital, please see our article entitled “Share capital”
You can see the Companies Act 2006 here.
Types of shares
Shares can be divided into the following categories.
- Ordinary these are the most common, standard company shares. They have no special rights or restrictions.
- Preference these shares carry a right whereby any annual dividends available for distribution will be paid preferentially on these shares before other types.
- Cumulative preference these shares carry a right whereby, if the dividend cannot be paid in one year, it will be carried forward to successive years.
- Redeemable these shares issued with an agreement that the company will buy them back at the option of the company or the shareholder after a certain period, or on a fixed date. Of course a company cannot only have redeemable shares – there must be a mixture.
A company may have many types of shares, all with different conditions attached to them.
Currency
Different types of share may be in different currencies. However, a public limited company (in England, Wales and Scotland) must have at least £50,000 of its issued capital in pounds sterling, irrespective of what other currency it uses.
Re-arranging shares
A company can change its shares if the change is authorised by its articles of association, or if passed by an ordinary resolution. An ordinary resolution can be used to:
- consolidate and divide its share capital into shares of larger amounts than its existing shares, for example 200 shares of £1 may be consolidated and divided into 100 shares of £2;
- sub-divide its shares, for example, a £1 share may be divided into 10 shares of 10p;
- convert all or any of its paid-up shares into stock or re-convert stock into shares.
In all the above cases, the total authorised and issued share capital remains unaltered.
Can the rights attached to shares be changed?
Yes. A company can alter the rights attached to any class of shares. How this can be done depends on whether the rights stem from the memorandum or articles or elsewhere. Note however, a company cannot simple convert non-redeemable shares into redeemable ones.
Purchasing own shares
A company may purchase its own shares, if permitted by its articles, and special resolution. But it cannot do so if this would leave only redeemable shares in issue.
A transfer document is not necessary when a company redeems its shares, or buys its own shares and cancels them. None of these events qualifies as a transfer of shares, and the company’s issued share capital must be reduced on the return of the shares to the company.
Can I buy shares from someone else
Shares in a public company are most commonly transferred through a broker dealing in the market appropriate to those shares, however, shares may be transferred directly from seller to buyer.
The transfer of shares is normally a chargeable transaction under the Stamp Act. Stamp Duty is payable to the Inland Revenue on the aggregate amount at ½% rounded up to the nearest multiple of £5.
How are shares transferred to new owners?
The transfer of shares in a public limited company is usually dealt with through a broker.
To transfer shares in a private or unlimited company, a 'stock transfer form' is used. These are available at the end of this article. The form is passed, along with the share certificate to the new owner.
The new owner completes the form, pays any stamp duty to the Inland Revenue and passes the completed form and share certificate to the company. The company secretary then arranges for the directors to authorise the change to the members' register and issues a share certificate in the new name.
Misplaced certificates
This depends on the company's articles. Usually, the law and the articles allow for a replacement share certificate to be issued when the directors are assured that the old certificate has been lost, worn out, defaced, or destroyed.
Relevant Net Lawman documents:
Relevant Net Lawman articles:
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