CHAPTER 8: ALTERATION OF SHARE CAPITAL
Section 617: Alteration of share capital of limited company
886. This section prohibits a limited company from altering its share capital except in the ways permitted under the Act. It includes a signpost to a new provision which will enable companies limited by shares easily to convert (or “redenominate”) their share capital from one currency to another (see section 622).
Section 618: Sub-division or consolidation of shares
887. Consolidation of a company’s share capital involves combining a number of shares into a new share of commensurate nominal value: for example, ten £1 shares may be combined to make one £10 share. Sub-division of a company’s share capital involves dividing a share into a number of new shares with a smaller nominal value: for example, a £10 share may be sub-divided into ten £1 shares.
888. Section 618 replaces section 121(2)(b) and (d) of the 1985 Act. It sets out the circumstances and manner in which a limited company may consolidate or sub-divide its share capital. Where shares in a company are sub-divided or consolidated, the proportion between the amount paid and the amount unpaid (if any) on the original share(s) must remain the same in relation to the share(s) resulting from the sub-division or consolidation. If, for example, £2 is unpaid on a £10 share that is subsequently sub-divided into ten £1 shares, there will now be 20p unpaid on each of those ten shares.
889. A company may exercise a power conferred on it under this section only if the members have passed a resolution authorising it to do so, which may be an ordinary resolution or a resolution requiring a higher majority (as the articles may require). Such a resolution may authorise a company to exercise more than one of the powers conferred on it under this section, for example, the resolution may authorise a sub-division of one class of the company’s shares and a consolidation of another. It may also authorise the company to exercise a power conferred on it under this section on more than one occasion or at a specified time or in specified circumstances. This avoids the directors having to obtain authorisation from the company’s members on each and every occasion that a company alters its share capital under this section (which may be inconvenient to the directors and members alike or impractical due to timing constraints).
890. The flexibility to pass a conditional resolution (that is, a resolution that will only take effect if certain conditions are met) given in subsection (4)(c) is necessary as a sub-division or consolidation of share capital (or any class of it) may form part of a wider re-organisation of a company’s share capital, for example, a reduction of share capital following a redenomination of share capital. It may, therefore, not be appropriate, or necessary, for a company’s share capital to be altered in this way if the reorganisation of share capital that the sub-division or consolidation is linked to does not go ahead.
891. Under the 1985 Act a company may only sub-divide or consolidate its share capital if it is authorised to do so by the company’s articles (see section 121 of that Act). This restriction has not been retained.
Section 619: Notice to registrar of sub-division or consolidation
892. The section replaces a similar requirement to notify the registrar contained in section 122(1)(a) and (d) of the 1985 Act. Where a company sub-divides or consolidates its share capital under section 618, it will continue to be required to give notice of this alteration to its share capital to the registrar within one month. However, there is a new requirement to file a statement of capital (see subsections (2) and (3)), which is in essence a “snap-shot” of the company’s total share capital at a particular point in time: in this case following the consolidation/sub-division.
893. For public companies, the requirement for a statement of capital is linked to the abolition of authorised share capital: it implements Article 2 of the Second Company Law Directive (77/91/EEC) which states:
“the statutes or instruments of incorporation of the company shall always give at least the following information…(c) when the company has no authorized capital, the amount of the subscribed capital…”.
894. The statement of capital will require the following information to be provided:
• the total number of shares of the company,
• the aggregate nominal value of those shares,
• for each class of shares, prescribed particulars of the rights attached to the shares, the total number of shares of that class and the aggregate nominal value of shares of that class, and
• the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
895. Whilst this Directive applies only to public companies it is important that the information on the public register is up-to-date. A statement of capital will, therefore, be required where it is proposed that a company formed under the Act will have a share capital on formation and, with limited exceptions (in particular, where there has been a variation of class rights which does not affect the company’s aggregate subscribed capital) whenever a limited company makes an alteration to its share capital. A statement of capital is also called for in certain circumstances where an unlimited company having a share capital makes a return to the registrar (see, section 856).
896. In making a statement of capital, a company is required to provide “prescribed particulars of the rights attached to the shares”. Here, and elsewhere in the Act where a statement of capital is called for, “prescribed” means prescribed by the Secretary of State in regulations or by order made under the Act.
897. The power conferred on the Secretary of State under this section enables the Secretary of State to specify the particular detail of the information which he requires to be filed with the registrar by a company. A statutory instrument made pursuant to this power will not be subject to any form of Parliamentary scrutiny.
898. Criminal liability for any failure to comply with the procedural requirements as to notice is retained (see subsection (4)). The penalty for this offence is set out in subsection (5).
Section 620: Re-conversion of stock into shares
899. Stock cannot be issued directly by a company but arises from a conversion of fully paid up shares into stock under section 121(2)(c) of the 1985 Act. This ability to convert shares into stock has not been retained. A company that currently has stock may, however, wish to re-convert this stock back into fully paid shares, and this is permitted by the following section.
900. Section 620 replaces section 121(2)(c) of the 1985 Act. It retains the ability to reconvert stock back into fully paid shares but removes the requirement for prior authorisation in the articles (currently a company may only re-convert stock back into shares if provision for this is made in its articles).
901. A re-conversion of stock into shares will require an ordinary resolution of the company’s members. Such a resolution may give the directors power to convert stock into fully paid shares on more than one occasion; at a specified time; or only if certain conditions are met (see subsection (3)). The flexibility to pass a conditional resolution (that is, a resolution that will only take effect if certain conditions are met) is necessary as a reconversion of stock into shares may form part of a wider re-organisation of a company’s share capital.
Section 621: Notice to registrar of reconversion of stock into shares
902. Where a company re-converts stock into shares it must give notice of the alteration to its share capital to the registrar under the provisions in section 621. This requirement replaces a similar provision in section 122(1)(c) of the 1985 Act.
903. A statement of capital is required (see note on section 619).
904. Criminal liability for any failure to comply with the procedural requirements as to notice is retained (see subsection (4)). The penalty for this offence is set out in subsection (5).