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Share capital structure concerns the extent that equity, through the issuing of stock in the company, is used to finance its operation and growth. A company’s share capital structure will hold implications for corporate governance, through dilution or concentration of shareholder voting power, as well as tax implications, which will have to be taken into consideration when determining a company’s short and long-term strategies.

The issuing of new shares in a company is known as allotment, while switching existing shares in a company between current shareholders or to third parties is known as transfer. The purpose of allotment of shares is to raise new share capital or dilute the current shareholdings in the company but can be subject to pre-emptive rights of existing shareholders.

What is the process of allotting shares?

Generally speaking, the directors of a company are empowered to allot a single class of shares subject to any restrictions in the company’s Articles of Association. If a company consists of more than one class of share, authorisation via a special resolution by the company’s shareholders may be required. In authorising an allotment, restrictions in the form of share price, recipient shareholders or time limits up to five years can be imposed by current shareholders.

New shares can only be issued if the company has unissued share capital in the first place. In terms of caps on how much share capital can be authorised, the Companies Act 2006 removed limits on the amount of share capital that can be issued. However, restrictions may still exist for companies established before the Act came into force in 2009, and will have to be bypassed by shareholder resolution.

Pre-emptive rights

Allotment of new shares is subject to any pre-emptive rights existing shareholders possess. These rights give priority in purchasing the newly issued shares to existing shareholders, which offer protection to minority shareholders who do not wish to have their voting powers or dividend entitlement diluted.

Are there registration requirements?

When new shares are supplied, a statement of capital must be submitted to Companies House.

What is the process of transfer of share capital?

Shares can be transferred from one shareholder to another by means of a stock transfer form. If the value of the transfer exceeds £1,000, or is part of a larger transaction exceeding the same, the stock transfer form must be registered with HM Revenue and Customs. Stamp duty tax will also be payable.

Share transfers do have to be reported to Companies House at the time of transfer but do have to be accounted for in a company’s annual return.

Contact our Specialist Corporate and Commercial Solicitors in Mayfair and throughout London

Lewis Nedas Law has a wide pool of clients, covering large corporations, SMEs, family owned-private businesses, start-ups and entrepreneurs, who require assistance with their share capital structures. In every case we strive to understand our client’s business operation and objectives, so we can assist at every step of the process of transferring share capital.

For further information or to speak to our expert Corporate and Commercial Solicitors, please call us on 02073872032 or complete our online enquiry form.

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