Share Restructures – Requirements & Pitfalls
Written by Adrian Smart, First Corporate Law Services: In our latest blog we aim to explain the process required to create multiple share classes for an existing company, the pitfalls and your legal obligations.
Scenario
The existing share structure only allows for ordinary shares to be issued. You have been instructed to create a new share structure, such as the creation of A, B & C share classes, and quite possibly allot or transfer shares or the reclassification of existing shares into A, B & C share classes.
A common mistake would be to file an SH01 with Companies House to inform them of the allotment of shares against a share class or to simply update the confirmation statement showing different classes. Unfortunately this is only the final step in a chain of events leading to the creation of a share class structure.
The Required Process & Statutory Obligations
Minutes of the Directors’ first and second Board Meetings
Only the Directors and Company Secretary, if appointed, need to be present at this meeting. The decision to create the share restructure, sub-division, bonus issue or share reclassification is confirmed.
Notice of a General Meeting and Form of Consent
Subject to the Company’s Articles of Association, this notice should be served on all members. The meeting may then be held providing that the Form of Consent is signed by over 90% of the Members. If the consent to short notice cannot be completed, the 14 day notice of the Meeting will need to be given to the Members.
Ordinary/Special Resolution
After the first meeting has been completed, the Ordinary/Special Resolution should be signed by either the Chairman of the meeting or an officer of the Company. The Ordinary Resolution will deal with the alteration to the share capital and the special resolution will deal with any changes to articles or disapplication of pre-emption rights.
Second Board Meeting
Similar to the first board meeting, only the Directors and Company Secretary, if appointed, need attend. This meeting simply records the final action taken with regard to the restructure of Share Capital and any allotment or transfers of shares.
Form SH01, SH08, SH10 and SH02
The relevant forms should be completed at the meeting depending on the transaction.
Amendment of Articles
In all probability the existing Articles will not contain the sufficient clauses to reflect the new share rights and restrictions. Most certainly for any pre 2006 Act companies you will need to change the articles to update them to the new act and bring in the share capital rights and limits. For existing 2006 Act Companies it is advisable to detail in the Articles the rights of the shares. You will also need to consider entering the new share classes with an upper limit to negate the need to increase the limit each time you want to issue new shares in a share class. Most importantly, without the new share class rights entered you may find that you may not have the correct wording to allow for differential dividends and therefore distributing different dividends to different classes may be invalid.
Companies Act 2006
Under the terms of the new Companies Act 2006 resolutions must be filed within 15 days from the date of the resolution and failure to file may result in a fine or prosecution. NOTE this may only be actioned if a complaint is received concerning the late filing.
Filing with Companies House
The Resolution, articles and any forms (including any changes to the Persons of Significant Control following allotments & transfers) must then be sent to Companies House, plus the changes must be reflected within the statutory registers.
How We Can Help
We can assist with the full procedure for share restructures, reclassification, sub-division or any type of other share structure required.
FirstOrder Secretarial
The changes must be reflected within the statutory records. Our Secretarial system – FirstOrder will allow you to record the changes, plus facilitate the storage of any minutes & resolutions within the Cloud library against the company, which will allow you to easily retrieve the documentation at a later date. To find out more take a look at our dedicated FirstOrder website.
Written by Adrian Smart, First Corporate Law Services. Exhibiting on stand 38 at Accountex Summit North 2018.
Financial Management - the cash flow cup is always half empty
Written by Neil Robertson, Compleat Software: As all qualified accountants know from day one of their training, the financial cup is always half empty. Whilst optimism and enthusiasm have their place elsewhere in the business, the reality of cash flow and running payroll, paying critical suppliers, VAT and PAYE/NI are the hard realities that keep each business in business.
For CFOs, cash flow is and will always be king. The question becomes how much of a cash flow buffer is required to keep the business safe? This is the available funds that are ringfenced against that rainy day (month or quarter) when the sales director’s optimism and enthusiasm in the sales pipeline was misplaced, a “disaster” occurs that requires unexpected cash to resolve, or a new initiative or project takes longer and more cash than anticipated. What if they all happened at once?
And then there are the storm clouds of Brexit and the direction of government on the horizon, heralding yet more uncertainty in the future and raising the question of whether the current cash reserves are sufficient?
Given the cup is always half empty, expediency says increase the reserves, put off recruitment, don’t replace aging equipment and technologies, stop investing in the future because if you get it wrong, there will not be one, only the ignominy of a failed business on your CV.
So how much cash buffer is enough to protect against the risk of failure and perhaps as important, what is the damage to the business (and the country) if the majority of CFOs view of what delivers “cash flow buffer comfort” is over cautious?
Productivity in the UK fell for the second quarter in a row (Office for National Statistics August 2017) predominately driven by the continuing failure of UK businesses to invest in the future. The productivity gap between the UK and our “competitors” in the global market is significant – 35% below Germany and 30% behind the USA and more worrying, the gap is growing as we fall further and further behind.
Whatever you view on the wisdom of Brexit, the ability of UK businesses to compete on the world stage has never been more important and frankly, we are already far from the ideal place to do so.
Whilst CFOs must make the hard choices to reflect their personal view of “cash flow comfort”, if their competitors have a more aggressive investment strategy, the longer-term outlook of survival is equally jeopardised as their business simply becomes increasingly uncompetitive.
Driving productivity growth should be at the top of the list our corporate priorities. The ability to do more with the resources we already have, or in some cases, doing the same with less resources, is simply a hard fact of life in the fight for both survival and growth, however, unpalatable some of those decisions may be.
For most CFOs, huge productivity gains sit right outside their office, drowning in the piles of paper, countless spreadsheets and endless unnecessary repetitive tasks that can be fully automated, simply to deliver the information to decide their cash flow buffer requirements.
For the rest of the business, the total lack of investment to increase productivity in the finance function gives little comfort in the capabilities of the CFO to make the right decision on investment priorities elsewhere.
The philosophy of “it works well enough so why change” may protect the cashflow buffer, but the reality is an over conservative CFO is as dangerous to the business as well funded competitor – or their more aggressively minded CFO.
Every CFO sits somewhere along the “cash flow buffer” spectrum. The point of this message is that an overly cautious CFO is as dangerous to the business as their overly aggressive counterpart.
Given the dismal UK productivity performance, it is easy to draw the conclusion that too many UK CFOs are under investing compared to their global competitors.
Unless this changes, these CFOs are contributing to the self-fulfilling prophecy of declining business performance that in turn “justifies” the growing value of their cash flow buffer to keep the business afloat, but the long term outcome is equally inevitable.
By under investing, the overly cautious CFOs are making their business ever more vulnerable to their more aggressive peer group and the increasing productive and competitive businesses they manage.
Written by Neil Robertson, CEO of Compleat Software. Exhibiting on stand 72 at Accountex Summit North 2018.
Don't let your business be swallowed up whole
Written by Rachel Gregory, Accountex portfolio: Over the last couple of years there’s no doubt there’s been a lot of change in business - change which is heavily driven by technology, demand, and science.
The problem we have is failing to see the obvious, we think our eyes are wide open but they’re closed shut. Routine is one of the biggest culprits of this. Take accountancy for example, many traditional practices function the same way they have done for many years, despite the technology available, until HMRC brings out a new legislation and change is forced upon them, nothing will change.
The reality is that change is good and stepping outside your comfort zone can push your business to the next level.
Take Blockbuster, the popular store of the 90s for hiring videos, CDs and DVDs (your Friday night in), which is now your LOVEFiLM, Netflix and Now TV, right? Blockbuster missed a BIG trick here, because they failed to recognise the changes in their customers' behaviour and demands.
I would have bet that Blockbuster would have been the first to offer a monthly subscription for watching films online, but they didn’t! Their competition wasn’t another video store down the road, it was online services that swallowed them whole.
Richard Susskind, president for Society, Computers and Law recently said, at the Xerocon conference in London, "your competition will look nothing like you" - and he's right.
So how can we predict and spot the obvious? Don’t just rely on word of mouth to keep your business going, don't offer the same services and don’t just change them because that’s what you think your customers like. Work smart, invest in a decent system, take time researching and step outside your comfort zone with new creative ideas that pave the future.
Ian Fletcher, from 2020 Innovation, speaking at the London 2020 Conference, said that "one of his clients raised their profits by 25% just by working smart and establishing new opportunities with their EXISTING clients’. I believe this is true. Businesses should start by focusing on their current customers.
Does a store look to have the same customer come back and buy the same product and spend the same amount of money each time? - no they don’t. They entice you in with new products and services and increase spend without you even realising that they are creating a desire and a want, that soon becomes a need.
Looking for opportunity to sell, expand and offer more to your existing clients is key.
My advice is don’t look for the obvious, look for the unpredictable, explore opportunities, step out of your comfort zone, measure your success and succeed.
Written by Rachel Gregory, sales manager, Accountex portfolio