The main reason small and medium-sized enterprises businesses amend shares is to gain the ability to award different values of dividends to different shareholders.
This is a legal way of rewarding shareholders in a way that is tax efficient- usually in husband and wife businesses.This involves taking ordinary shares and changing them into Alphabet shares, whereas you can declare different dividends to different classes.
There are many reasons you may want to change the share structure of your business, but here are the most common ones:
-Instead of seeking advice you set the business up yourself and only issued 1 share which now cannot be divided to bring in a new business partner or pay your spouse for tax efficiency
-To issue additional shares to reward employees without giving up control, such as redeemable shares which are bought back at nominal value when an employee leaves
-For investment, such as preference shares, offering investors first dividends and/or fixed dividend payout each year
In a nutshell, if you want to amend shares, issue new shares, or change their rights to voting or dividends - you’ll need to go through this process unless it was specified in the articles of association when you set up the company.
It’s a three-step process:
- Adopt a new set of articles of association
- Pass a special resolution and/or ordinary resolution (dependant on which change is required, read on)
- Send the above two to companies house within the deadline along with any relevant forms
A new set of articles of association will:
-Detail the classes of shares that directors can allot
-Specify the dividend, voting & equity rights of each class of share
A new set of articles of association requires a special resolution.
If you need to permit the directors to allot shares, this requires an ordinary resolution in addition to the above.
An ordinary resolution requires a majority of 50% of shareholder votes to pass, a special resolution requires at least 75% of shareholder votes.
Companies House Forms:
SH10 ‘Give notice of particulars of variation of rights attached to shares’ is used to inform Companies House of changes to rights.
SH08: ‘Notice of name or other designation of class of shares is used to inform Companies House of a re-designation of shares, such as changing shares from Ordinary to Class A, B etc.
The deadline for sending all the documents to Companies House is currently within 15 days of it being agreed upon.
