{"id":10221,"date":"2023-06-21T20:34:56","date_gmt":"2023-06-21T19:34:56","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=10221"},"modified":"2024-02-15T09:09:06","modified_gmt":"2024-02-15T09:09:06","slug":"share-splits-how-to-subdivide-company-shares","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/share-splits-how-to-subdivide-company-shares\/","title":{"rendered":"Share splits – how to subdivide company shares"},"content":{"rendered":"

A share split involves the subdivision of one company share into two or more shares. By doing so, a company has a greater number of shares of a smaller value to sell to new investors, or can create a more even distribution of control.<\/p>\n

In this post, we will briefly explain share splits, why companies with share capital may decide to carry out such a procedure, and the steps involved in doing so.<\/p>\n

Why would a company split its shares?<\/h3>\n

Often referred to as a subdivision of shares, a company would carry out a share split to divide its existing issued shares into more shares of the same class. For example, splitting one ordinary share with a \u00a310 nominal value into 10 ordinary shares with a nominal value of \u00a31 each.<\/p>\n

Companies will often subdivide shares when their market value increases, thus splitting the business into smaller pieces and enabling members to sell some of their shareholdings to other members or new investors. This process can be used as an alternative to issuing more shares<\/a> or selling larger percentages of the company.<\/p>\n

Issuing shares when setting up a company – know your options<\/span><\/a>\n Can I sell shares in a private limited company?<\/span><\/a>\n <\/p>\n

When share splits take place, the percentage and value of each member\u2019s total shareholdings remain the same, as does the company\u2019s value. The only thing that changes is the number of issued shares and their individual nominal value.<\/p>\n\t\t

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By having more shares of a smaller value, rather than fewer shares of a higher value, a company can improve its liquidity and marketability to attract new investors. It also makes it easier for members to manage the ownership structure of the company and sell some of their shareholdings without losing too much control.<\/p>\n

How to subdivide company shares<\/h3>\n

Share splits may seem like a simple enough concept, but they can be complex.<\/p>\n

Choosing to subdivide company shares could have a considerable impact on your business, so we would urge you to seek professional advice to ensure that any such action is carried out properly and in a way that is most beneficial to the success of the company.<\/p>\n

Should you decide to carry out a share split, the following steps will be required:<\/p>\n

1. Check the articles of association and shareholders\u2019 agreement<\/h4>\n

First and foremost, you must check your company\u2019s articles of association and any shareholders\u2019 agreement for restrictions or rules on the subdivision of shares.<\/p>\n

No such restrictions are set out in the Model articles, but some companies may prohibit share splits or include certain conditions in bespoke articles or a shareholders\u2019 agreement.<\/p>\n

What is a shareholders\u2019 agreement and why do I need one?<\/span><\/a>\n How to amend a company\u2019s articles of association<\/span><\/a>\n <\/p>\n

Should any such clauses exist, you would need to alter the articles and\/or the share agreement accordingly. To do so, the existing shareholders would be required to pass a special resolution approving any such amendment.<\/p>\n

2. Pass a members\u2019 resolution<\/h4>\n

The next step is to pass a resolution of the members to authorise the proposed share splits. In most companies, an ordinary resolution will suffice for this type of decision, but you should check the articles and shareholders\u2019 agreement in case a special resolution is required.<\/p>\n Company resolutions – the different types explained<\/span><\/a>\n \n

You can pass a shareholders\u2019 resolution on a poll, or by a show of hands at a general meeting. Alternatively, the decision can be made by written resolution.<\/p>\n

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You do not have to send a copy of any ordinary resolutions to Companies House. This requirement only applies to special resolutions. However, you must retain copies of all resolutions, whether ordinary or special, with your company records for a minimum of 10 years.<\/p>\n

3. Complete Companies House form SH02<\/h4>\n

You must notify Companies House of share splits using form SH02<\/a> – Notice of consolidation, sub-division, redemption of shares, or re-conversion of stock into shares.<\/p>\n

To following details should be provided on this form:<\/p>\n