17 March 2015
We were approached by one of our Accountant clients, who had a small company they looked after, which had been in existence as a family company for many years, and was bringing a new Director on board.
The Board wished to issue shares to this person: they wanted to be able to pay them dividend, but did not wish to relinquish control of the company.
We suggested having different classes of shares: if a company has different classes of shares in issue then different rights can be ascribed to those different classes as regards payment of dividends, voting rights, even procedures such as issuing new shares or transferring shares.
After they had spoken to their Accountants, the company decided to re-designate their existing issued shares as ‘A’ Ordinary Shares, and that they wanted to be able to issue new shares called ‘B’ Ordinary Shares to the new Director.
We suggested that they also take this opportunity to update their constitution – the company had been incorporated in the 1970s, and had since that time made various changes by resolution. We suggested that now would probably be a good time to adopt Articles of Association which were drawn clearly under the Companies Act 2006, including the historic changes if required, so that the company had a ‘clean’ set of Articles, going forward.
The ‘B’ shares would have a right to dividend (the Board would be able to decide to pay one amount on the ‘A’ shares and a different, or no, amount on the ‘B’ shares).
The ‘B’ shares would not have a right to share in any surplus left after repayment of the shareholders in the event of the company being wound up or sold (it is always surprising how few companies will address the “worst case scenario”).
If the holder of ‘B’ shares left the company’s employ (as an employee and/or as a Director) then they would be required to offer their shares up for sale, with any such transfer being at the Board’s discretion. Furthermore, if they failed to do so within one month of ceasing to be an employee then the company is granted powers to effect the transfer on their behalf (this is called a “deemed transfer provision”, and ensures that shares do not pass outside the company’s circle without the approval of the Board and/or the other shareholders).
If you have clients who are in this situation, or if you would like to discuss the options available, or if we can be of any assistance to you in a situation like this or in any other matter, then please do not hesitate to contact us here at Bourse.