Other Changes Relating To Shares | Irwin Mitchell

Sub-Division and Consolidation

Under the 1985 Act, a company’s power to sub-divide or consolidate and divide its shares must be authorised in its articles. Under CA 2006, the position is reversed so that a company will have that power, unless restricted or prohibited by its articles. Shareholder approval will still be required in the form of an ordinary resolution unless the articles provide more stringent requirements.

Existing companies may wish to amend their articles and restrict this power.

Redeemable Shares

From 1 October 2009 a private limited company will be able to issue redeemable shares without having specific power to do so in its articles. In contrast, public limited companies will continue to require authority under their articles.

If an existing private limited company wishes to continue to restrict or prohibit the issue of redeemable shares, it must therefore amend its articles so as to include a suitable restriction or prohibition.

From 1 October 2009, directors of limited companies may also determine the terms, conditions and manner of the redemption, if they are authorised to do so by company articles or by ordinary resolution. They must do so before the relevant shares are allotted. If they are not so authorised, then the terms of redemption must be set out in the articles (as was the position under the 1985 Act).

Providing directors with the power to determine the terms of redemption may reduce the administrative burden on a company. However, shareholders may wish to retain control over those terms (through their ability to amend the articles), given the potential impact that an issue of redeemable shares may have on the value of other shares.

Under the 1985 Act, payment for redeemable shares was required on redemption. From 1 October 2009, CA 2006 will allow payment to be made at a later date if the terms of redemption permit this and the company and holders of the shares agree.

Purchase Of Own Shares

CA 2006 permits the repurchase of shares unless this is restricted or prohibited by a company’s articles. This once again reverses the position under the 1985 Act, which required authorisation to be contained in a company’s articles.

If an existing company wishes to continue to restrict or prohibit the purchase of its own shares, it must therefore amend its articles so as to include a suitable restriction or prohibition.

Shareholder resolutions authorising a purchase of own shares passed under the 1985 Act will remain effective on and after 1 October 2009.

Payments Out Of Capital

From 1 October 2009 a private limited company will be able to redeem or purchase shares out of capital unless its articles restrict or prohibit that right. Under CA 2006, redemption or repurchase requires a directors’ solvency statement in addition to the passing of a special resolution.

Unless the issue of redeemable shares, or a company’s purchase of its own shares, is already prohibited by the articles, a company should consider whether to amend the articles to restrict or prohibit its ability to do so out of its capital.