UK law requires generally that a limited company maintains its share capital but does allow a reduction in capital in certain circumstances. (Note: the restrictions do not apply to an unlimited company so a re-registration as unlimited is a possible option.)

A company may reduce its capital by:

• extinguishing/reducing the liability on any of its shares in relation to unpaid share capital, or
• cancelling any paid-up share capital that is lost or unrepresented by available assets, or
• by repaying any paid-up share capital in excess of the company’s wants

A company’s share premium account, capital redemption reserve, and redenomination reserve may also be reduced under the same procedure.

There are two ways to effect a reduction:

1. by application to court – this method is available to both public and private companies or
2. by means of a solvency statement – this method being much simpler but available only to private companies.

In either case it is crucial that the correct procedure is followed and expert advice should be sought.

A company can have as many classes of shares as it likes and the rights and conditions of those shares have to be established either by the terms of issue or by the articles of association. We always recommend the latter as this will mean that the rights are clearly set out for all to see and will avoid any confusion when shares are transferred.

The York Place service includes a review of your current articles of association and recommendations on updates as well as drafting the necessary clauses for the new share classes.

Generally you need to follow the procedure set out in the company’s articles of association but if there is no provision there then the Companies Act requires written consent of the holders of three-quarters in nominal value of the issued shares of the affected class, or a special resolution passed at a separate general meeting of the holders of the class.

The Companies Act requires a special resolution for some important decisions such as altering the articles of association. It can be passed by a three-quarters majority of those attending a general meeting or a private company can use a written resolution which is deemed passed when those holding three-quarters in nominal value of the shares give their assent.

The exact procedure will depend on whether the shares are to be purchased from a) distributable profits or the proceeds of a fresh issue of shares, or b) from capital. The former is relatively straightforward but it is important that a purchase agreement is properly drafted and that this is made available for inspection by the other shareholders. The latter is more complex as is any procedure whereby the capital is reduced and involves informing each creditor or advertising in a national newspaper.

Expert advice should always be sought on a purchase of own shares – not only to ensure that the procedure cannot be challenged later but also to ensure that taxation matters are dealt with properly.

A special resolution is required and this must be filed at Companies House together with a copy of the articles of association as amended.

This will depend on the company’s article of association but even if they permit it, the directors should consider the legal issues involved.

• Where a minor holds voting shares it is not clear that they can validly exercise their voting rights before turning 18. This could potentially hinder the company’s ability to meet quorum requirements necessary for general meetings.
• Even where a minor is old enough to both sign documents and understand what they are signing, any agreement or obligations that minor enters into regarding company shares will not be legally binding on them and can be renounced up until the point that they turn 18.

It may be advisable for the shares to be held by an adult on trust for the child.

York Place can assist with setting up the necessary documentation.

When considering a new issue you must first consider whether the directors need to be granted a power to allot more shares. The directors of a company with just one class of shares incorporated since 2009 will probably have full power to allot further ordinary shares. If not, then an appropriate authority needs to be sought from the members. If the articles contain pre-emption provisions in favour of existing members then a further may need to be followed. In any case it is important that everything is correctly documented to ensure that the issue is not challenged later. Once the shares have been formally issued a form must be filed at Companies House with a new statement of capital.