Complete Guide to Share Reorganisation in the UK

Thinking of restructuring your company share structure? You might be an established business owner or a first-time owner of a Property SPV, and the idea of shares reorganisation might seem overwhelming at first. But don’t worry, you’ve come to the right place!

In this comprehensive guide, we take you through everything you need to know about shares reorganisation in the UK, step by step. By the time you’ve finished reading it, you’ll have the confidence and clarity you need to make the right decisions.

What is Shares Reorganisation?

Let’s start by breaking it down: Shares reorganisation simply refers to any change in the share capital, share structure, or rights that are associated with shares. Imagine your company as a pie, where shares reorganisation is all about how you slice up the pie, or even sometimes how big the pie is!

These changes can be minor, like altering voting rights, or could be huge, like splitting shares or merging them. The objective is to more suitably configure the share structure for your current business needs.

Shares reorganisation is not just for large corporates alone. If you own or invest in a property SPV (Special Purpose Vehicle), an understanding of reorganisations will allow you to adapt as your business and your investor relationships develop and expand.

Why Would You Want to Reorganise Shares?

You might be wondering, “Do I need to think about this?” And the answer is usually yes, especially as your business grows or changes direction. There are several common scenarios where shares reorganisation has real benefits:

• Winning New Investors – If you must bring in new investors, you may need to create new classes of shares or alter existing ones. Investors will look for certain rights attached to their shares, whether preferential dividends, special voting rights, or restrictions against selling shares, which could mean that your existing hierarchy of shares may not work for them without some restructuring. By reorganising shares, you are able to create space for fresh money while also protecting your interest.
• Employee Share Schemes – If you’re going to incentivise employees with ownership-based incentives, you’ll likely need a share arrangement to make this possible, granting shares that can vary in rights or restrictions from normal investor shares.
• Succession Planning – If you’re reaching retirement age or want to pass your company to relatives, reorganising shares can allow for clear ownership to be passed on, allowing transitions to be simple and avoiding conflict.
• Tax Efficiency – A thoughtfully designed share structure can powerfully maximise your and your investors’ tax positions, often reducing capital gains tax liabilities or avoiding unwanted stamp duties. While this needs to be done with care, reorganisations create options to reduce your fiscal costs.
• Corporate Transactions – Corporate transactions like mergers, acquisitions, or selling the business usually requires the company to clean up or restructure its share capital so that it is marketable and regulation friendly for the deal.
• Resolving Conflict – If you are in conflict with other shareholders, restructuring shares can make rights clear and resolve conflicting interests. It could be a way of defining powers and responsibilities, cutting down on the likelihood of disagreements in the future.

In other words, there are several reasons to consider shares reorganisation. The key is to keep your specific objectives front and centre while continuing to learn and planning your next move.

Types of Shares Reorganisation in the UK

All shares reorganisations are not created equal! These are the main ones you’ll encounter in UK practice:

• Share Splits – One of the simplest forms is a share split. Suppose you own just one £1,000 share. When the company has a ten-for-one share split, you now have ten shares worth £100 each. Your overall percentage ownership never changes, and the company’s valuation remains unchanged. But these lower denominations might make your shares more liquid or even more appealing to smaller investors, increasing liquidity and potentially widening your shareholder base.
• Share Consolidations (Reverse Splits) – Share consolidation or “reverse split” is where you take a number of existing shares and merge them into fewer but higher face value ones. An example of taking ten £1 shares and merging them into one £10 share makes your share register simpler. This may make your company appear larger or tidy up after several years of issuing share with varying values, which usually happens in more established businesses.
• Subdivision & Consolidation – For the most part, subdivision and consolidation can be considered as two sides of the same coin; subdivision is splitting shares in order to divide them up into more shares of lesser value, and consolidation is combining in order to have fewer shares of greater value. You may find yourself doing one or the other, depending on your needs.
• Redesignation of Shares (Share Class Conversion) – This is usually used to change the rights of existing shares without actually splitting or merging the shares themselves. For example, some of the shares might be changed to non-voting shares, or you might grant a new preference dividend right to a class. This is especially useful if you are to issue different investor rights or create employee shares that act differently to investor shares.
• Scrip Dividends/Bonus Issues – At other times, companies might choose to give scrip dividends or bonus shares, which is a way of rewarding the shareholders by giving them extra shares instead of cash dividends. This increases issued share capital without reducing the company’s cash reserve.
• Capital Reduction – On the more complex side, you’ve got capital reduction, where you’re cutting back on the issued share capital of the company. You might need to do this if you have excess capital that needs to be returned to shareholders or you’re writing off built-up losses. This is all strictly regulated to protect creditors and usually requires special shareholder approval and sometimes the courts as well.
• Share Buybacks – Sometimes a company may buy back the shares from the shareholders, normally for capital return or exit planning purposes. Buy-backs can also assist with consolidation of ownership or unwanted shareholders, but they also come with tax and legal considerations that you need to be aware of.

Determining which form of shares reorganisation applies in your case is the next step and will play a significant part in your planning process.

Legal & Tax Considerations

Next, we’ll look into the nitty-gritty of the law and tax, which are areas that can be considered important, but in some cases, feel dry. But understanding these can save you from costly mistakes and delays.

Company Law Foundations

The legal framework governing shares reorganisations in the UK is anchored in the Companies Act 2006. The exact rules you’ll follow depend on a few things, including your company’s Articles of Association, any shareholder agreements you’ve signed, and the provisions in the Act itself.

For most shares reorganisations such as share splits or consolidations, the company usually need to pass an ordinary resolution, i.e., a simple majority of shareholders voting in favour (>50%). For more sensitive transactions like capital reductions, the threshold is higher, which means that you must have a special resolution (usually a 75% majority) and in some cases even the approval of the court to bring peace to creditors and minority shareholders.

An important practical note: many Property SPVs are started with standard model Articles of Association, which do not, by default, allow all types of reorganisations. For example, they may not have provisions for the issuing of multiple share classes or the alteration of rights with ease. That is, you may have to first vary your Articles, and that requires shareholder agreement. Always examine your governing documents thoroughly before planning any structural makeover.

Tax Implications

On the tax side, reorganisations can have varying consequences. Some shares reorganisations are tax-neutral, and therefore shareholders are not hit with upfront capital gains tax (CGT) or income tax liabilities when the reorganisation occurs. For example, a share split does not in itself generate tax events.

However, certain reorganisations like certain buybacks, share cancellations, or redesignations will have tax effects. For instance, a share buyback might be treated as a disposal of capital, subject to CGT, or as a distribution income that is taxable to some shareholders, depending on the situation.

Stamp duty can also arise if shares are being transferred in reorganisations involving multiple facets, with added expense.

HM Revenue & Customs (HMRC) guidance on shares reorganisation is long and often confusing. The easiest approach is to hire an accountant or tax expert with a full understanding of property and corporate arrangements, so the tax impact is maximised and surprises avoided.

Regulatory Filings

Compliance-wise, all reorganisation require filings at Companies House. These include the filing of forms such as SH02 for share allotments, SH06 for buy-back, and SH08 for change of name or share classes. You must file them within specified timescales, which is usually 15 days from the event.

Failing to file properly and within time may result in penalties, compromise the validity of your share changes, and cause administrative hassle. It’s one of those things where attention to detail is worth it.

How to Decide If You Need Shares Reorganisation

Before jumping into any share restructure, it is important to stop and reconsider. Ask yourself: What problem am I actually trying to solve? Reorganising shares isn’t always the solution; maybe it’s a governance problem or need for better communication instead.

Who else will it impact? Other shareholders, staff, lenders, or future potential investors may have rights and expectations you need to consider. Addressing their perspectives and problems ahead of time prevents conflict.

What is your ideal end structure; not for today, but ultimately? A proper reorganisation will position your firm for expansion, succession, or sale without the requirement for a further reshuffle down the line.

Review your Articles of Association: Do they permit the alterations you desire, or will amendments be required? Shareholder agreements and loan deeds may similarly impose restrictions.

Lastly, have you spoken to professional tax and legal advisers? Shares reorganisations can be straightforward but sometimes hold hidden traps. Professional advice always pays off.

If any of these points make you hesitate, take a step back and consult before you proceed further.

The Step-By-Step Process

Now let’s move on to the nuts and bolts. Here is a general how-to for shares reorganisation. Some of the steps could be different for your individual case, but this will serve as a good template.

• Step 1: Define Objectives – Decide what you want to do. Are you winning over new investors? Issuing employee shares? Reducing complexity? Your objectives will be the foundation for every decision.
• Step 2: Review Legal Documents – Carefully examine your company’s Articles of Association. Do these allow for the actions you wish? Examine shareholder agreements for any prohibitions or special entitlements. Note existing share certificates and whether you will need to send out replacements in the future.
• Step 3: Create a Plan – Draw out the new share structure, what share classes you need, the rights that go with each, and what legal documents will need to be prepared or amended.
• Step 4: Drafting Board and Shareholder Resolutions – These are drafted as formal records of the directors and shareholders of the Company, sanctioning the proposed shares reorganisations. Give all the details such as the number of shares, its worth, rights, etc.
• Step 5: Conduct Meetings and Pass Resolution – Board meeting or general meeting or even written resolution can be passed as per the rules and regulations of the company.
• Step 6: Register Documents at Companies House – File all filings in a timely fashion to make your changes effective at law and on the public register.
• Step 7: Issue or Replace Share Certificates – Issue your shareholders with new certificates clearly reflecting the new shareholdings.
• Step 8: Communicate With Stakeholders – Put everyone, from investors, staff, and partners alike, in the picture. Early and open communication prevents confusion and builds trust.
• Step 9: Tax and Accounting Adjustments – Ensure that your accountant updates the firm’s books for dividends, capital gains, tax positions, and other reporting requirements for regulators.

Other reorganisations might involve additional actions, such as lender or court approval, but these nine steps are a good starting point.

Common Traps & How to Side-Step Them

Shares reorganisation can quickly get tricky, so let’s highlight some common traps and how you can steer clear of them:

• Forgetting the Articles of Association – One common mistake is forgetting your Articles of Association. It’s simple to assume that you can change shares whenever you feel like it, but many changes require express authority or Articles amendments beforehand. Leaving this out means your actions will be invalid.
• Neglecting Minority Rights – Minority rights of the shareholders also matter. Even small shareholders can object to or veto approvals if they don’t feel fairly treated. Keeping all stakeholders on board and keeping processes transparent will prevent headaches.
• Late Companies House Filings – Filings with Companies House must be made on time. Late filings can incur penalties, and worse, your share changes might not be legally effective. Keep a detailed filing checklist and calendar.
• Tax Surprises – Tax surprises can cost dearly. Don’t assume shares reorganisations are tax neutral. Get a tax adviser on board well ahead to work through plans and identify any latent liabilities.
• Not Documenting Properly – Good documentation is your best friend. Take good minutes, resolutions, and current share certificates. This paper trail takes care of you and your shareholders if things go pear-shaped down the line.
• Confusing Share Value & Company Value – Changing the share numbers or classes won’t change your overall company value in itself, it just re-divides the pie differently.
• Forgetting to Inform People – Never underestimate the importance of communication. Letting your shareholders and stakeholders know upfront avoids misunderstandings and builds confidence.

If unsure, ask! Loads of professionals are out there to help you. Don’t risk your hard work over a preventable mistake.

Conclusion

A properly planned shares reorganisation can propel your business forward, unlocking capital, hiring staff, easing conflict, and building a future. It’s also, however, a legal and financial process which has to be respected, precise, and often specialist in approach.

If you are considering a reorganisation, start by writing down what you wish to obtain, rounding up your professional support team, and charting out each step. Don’t be afraid to ask questions since that’s how you protect your business and set yourself up for success.

Remember, at Property SPV, we’re here to help property professionals like you make sense of these tough choices. A sounding board? Expert guidance? Let us know, we’re always happy to chat about your unique circumstances.

Ready to take action? Review your company paperwork, think through your objectives, and, if you’re prepared, make your next move an informed one.

---

FAQS

1. What is shares reorganisation?

A shares reorganisation is a reshuffling of the arrangement of a firm’s shares or their rights. It can be a division of shares, a consolidation of shares, or the issue of new classes of shares to better fit the firm.

---

2. Do shares reorganisation change the value of my business?

No, shares reorganisation changes the structure of the way ownership is divided but not the value of the company as a whole. Your ownership share doesn’t change unless new shares are issued.

---

3. Do I need shareholder approval to reorganise shares?

Yes, shares reorganisations are usually subject to shareholder approval. Some require a simple majority vote, but larger ones like capital reductions usually need a special resolution of at least 75% approval.

---

4. Do my shareholders and I have to pay tax when shares are reorganised?

It varies. The majority of reorganisations are tax-neutral and do not require the payment of tax upfront, but changes like buybacks or certain share redesignations can result in tax charges. Always seek tax advice in advance.

---

5. What legal documents should I review before reorganising shares?

You must refer to your company’s Articles of Association and shareholder agreement. These state what changes can be made and what authority is needed.

---