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Sub-Division of Share Capital

Sub-division of share capital refers to a corporate action in which a company increases the number of its existing shares without altering the overall value of the company. This is done to improve the liquidity of the company to allow for more affordable investment which will encourage more trading. Our team will ensure that the sub-division of your company’s shares is done in compliance with the applicable regulations and company law.

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Sub-dividing capital can be difficult, however, our legal team, who specialise in corporate law and governance, will ensure ease and understanding during the complex process. We will make sure your company restructuring is handled with care, serving the best interests of the company and its stakeholders.

Sub-dividing share capital requires careful consideration and adherence to various legal requirements. Such requirements include:

  • Shareholder approval

  • Compliance with the Articles of Association

  • Notifying regulatory authorities including the Financial Conduct Authority (FCA) and the London Stock Exchange (LSE)

  • Compliance with taxation laws and other regulations

Call us on 028 8772 2102 (Dungannon/Belfast).

What is a sub-division of share capital?

A sub-division of share capital, often referred to as a "stock split," is a process in which a company divides its existing shares into a greater number of new shares without changing the total nominal value of the shares. This is done by reducing the nominal value of each share while increasing the quantity of shares proportionally.

The purpose of a sub-division is to make the company's shares more affordable and accessible to a wider range of investors, as well as to improve liquidity in the market. It doesn't change the overall value of the shareholder's investment; they still own the same portion of the company, but they have more shares at a lower nominal value.

For example, in a 2-for-1 sub-division, each existing share with a nominal value of £1 might be divided into two new shares with a nominal value of £0.50 each. So, if you held 100 shares before the sub-division, you would now hold 200 shares, but the total value of your investment would remain the same.

FAQs

How does a company sub-divide its share capital?

  1. Review the Company Articles of Association - Start by reviewing the company's articles of association to understand the existing share structure and any provisions related to sub-division. Ensure the articles allow for sub-division or determine if amendments are needed.

  2. Check whether a Shareholders’ Agreement Exists - Even when a sub-division of share capital maintains the same equity holding for each shareholder, it remains essential to ensure compliance with any existing shareholders' agreement in effect.

  3. The Board must call a meeting for Shareholders to propose an Ordinary Resolution – The company must then keep a record of the ordinary resolution.

  4. The Subdivision takes effect, and the Company must give Notice to Companies House – This is required by section 619 of the Companies Act 2006.

  5. Shares are then Issued.

What are the benefits of share sub-division?

There are various benefits to sub-dividing shares that can vary depending on the specific circumstances and objectives of each company. These include:

  • Lower Share Price: Share sub-division reduces the price of individual shares, making them more affordable for a broader range of investors.

  • Improved Liquidity: Lower share prices often lead to increased trading activity and liquidity in the market.

  • Attracting New Investors: With more affordable shares, a company can attract new investors and potentially broaden its shareholder base.

  • Enhanced Market Perception: Smaller share prices can create the perception that shares are more accessible and reasonably priced, potentially enhancing the company's market image.

  • Compliance: Share sub-division may be necessary to meet regulatory requirements or stock exchange listing rules.

  • Improved Marketability: Lower share prices can make a company's shares more marketable and appealing to a wider range of investors.

  • Potential for Stock Splits: Share sub-division is a common step before a stock split, which may further enhance marketability and liquidity.

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Our Company Restructuring Solicitors

Kieran QuinnKieran QuinnDirector
Emma McCaulEmma McCaulSolicitor
Ellen BatesEllen BatesTrainee Solicitor
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