Companies Act 2006 – CHAPTER 8

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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).

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