In this article, we aim to explain the process required to create multiple share classes for an existing company, the pitfalls, and your legal obligations.

Scenario

The existing share structure only allows for ordinary shares to be issued. You have been instructed to create a new share structure, such as the creation of A, B & C share classes, and quite possibly allot or transfer shares or the reclassification of existing shares into A, B & C share classes.

A common mistake would be to file an SH01 with Companies House to inform them of the allotment of shares against a share class, or to simply update the confirmation statement showing different classes. Unfortunately, this is only the final step in a chain of events leading to the creation of a share class structure.

The required process & statutory obligations

Minutes of the directors’ first and second board meetings

Only the directors and company secretary, if appointed, need to be present at this meeting. The decision to create the share restructure, sub-division, bonus issue, or share reclassification is confirmed.

Notice of a general meeting and form of consent

Subject to the company’s articles of association, this notice should be served on all members. The meeting may then be held, providing that the Form of Consent is signed by over 90% of the members. If the consent to short notice cannot be completed, the 14-day notice of the meeting will need to be given to the members.

Ordinary/special resolution

After the first meeting has been completed, the ordinary/special resolution should be signed by either the chairman of the meeting or an officer of the company. The ordinary resolution will deal with the alteration to the share capital, and the special resolution will deal with any changes to articles or disapplication of pre-emption rights.

Second board meeting

Similar to the first board meeting, only the directors and company secretary, if appointed, need to attend. This meeting simply records the final action taken with regard to the restructure of share capital and any allotment or transfers of shares.

Form SH01, SH08, SH10 and SH02

The relevant forms should be completed at the meeting depending on the transaction.

Amendment of articles

In all probability, the existing articles will not contain the sufficient clauses to reflect the new share rights and restrictions. Most certainly for any pre 2006 Act, companies you will need to change the articles to update them to the new act and bring in the share capital rights and limits. For existing 2006 Act companies it is advisable to detail in the articles the rights of the shares. You will also need to consider entering the new share classes with an upper limit to negate the need to increase the limit each time you want to issue new shares in a share class. Most importantly, without the new share class rights entered you may find that you may not have the correct wording to allow for differential dividends. Therefore, distributing different dividends to different classes may be invalid.

Companies Act 2006

Under the terms of the new Companies Act 2006, resolutions must be filed within 15 days from the date of the resolution, and failure to file may result in a fine or prosecution. NOTE this may only be actioned if a complaint is received concerning the late filing.

Filing with Companies House

The resolution, articles, and any forms (including any changes to the Persons of Significant Control following allotments & transfers) must then be sent to Companies House, plus the changes must be reflected within the statutory registers.

How we can help

We can assist with the full procedure for share restructures, reclassification, sub-division, or any type of other share structure required.

If you would like further information, please contact steve@fcls.co.uk or use the order form to instruct us.

FirstOrder Secretarial

The changes must be reflected within the statutory records. Our secretarial system – FirstOrder will allow you to record the changes, plus facilitate the storage of any minutes & resolutions within the cloud library against the company, which will allow you to easily retrieve the documentation at a later date. To find out more take a look at our dedicated FirstOrder website.

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