Shareholder resolutions: sub-divide/consolidate shares
Written shareholder resolutions to sub-divide or consolidate issued shares in a company
Background
How does a company alter its share capital?
A private limited company can alter its share capital in a number of ways. These include:
- sub-division: sub-dividing issued shares into shares of a smaller nominal amount
- consolidation: consolidating and dividing issued shares into shares of a larger nominal amount
Other types of alteration include the allotment of new shares, a reduction of capital, a redemption or purchase of own shares and converting issued shares into shares of a different class.
Why would a company sub-divide shares?
A company is often incorporated with a relatively small number of ordinary shares. If the company wishes to issue new shares, for example, on an investment round in the company, it may need to sub-divide the existing shares so that the numbers and percentages work in line with the terms of the investment round.
As an example, say a company is incorporated with 2 shares with a nominal value of £1.00 each. If the company then obtains an investment for new shares representing 20% of the enlarged share capital, it will likely need to sub-divide the existing 2 shares into shares of smaller nominal value.
If the company issued, say, a further single share of £1.00 to the investor, the investor would have 33.33% of the enlarged share capital and not 20% as envisaged.
One way of doing this would be to sub-divide the existing 2 shares of £1.00 each into 4 shares of £.0.50 each. The investor could then subscribe for 1 share of £0.50 and would own 1 out of the 5 shares in issue, which is 20% of the enlarged share capital.
Another idea would be to sub-divide into a much smaller nominal share value as this might assist in the future if there was, for example, a further investment for a smaller percentage or a transfer of part of a shareholder’s holding of shares.
How does a company sub-divide its shares?
Sub-division of shares requires an ordinary resolution of shareholders, unless the Articles of Association exclude or restrict a sub-division of shares. If the Articles of Association do exclude or restrict a sub-division, the Articles of Association will first require amendment by special resolution to disapply that exclusion or restriction.
Following the passing of the ordinary resolution, the company will need to file Companies House Form SH02 within one month.
Why would a company consolidate shares?
A share consolidation is the opposite of a sub-division. On a consolidation, a specified number of existing shares are consolidated into a single share (or perhaps a lower number of shares).
A private limited company is less likely to carry out a consolidation than a public company. A public company may do this in order to increase its traded share price or perhaps to reduce the number of shareholders on its register.
If a private company did wish to consolidate its share capital, the process requires an ordinary resolution of shareholders, unless the Articles of Association exclude or restrict the right to consolidate shares.
Following the passing of the ordinary resolution, the company will need to file Companies House Form SH02 within one month.
About this shareholder resolution to sub-divide or consolidate shares
This shareholder resolution is in the form of a written resolution of shareholders and contains wording for an ordinary resolution either to sub-divide existing issued shares into shares of a smaller nominal value or to consolidate shares into shares of a higher nominal value.
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