Redesignation of Shares | P.A. Duffy & Co Solicitors

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Business Asset Purchase Agreements

Re-designation of Share Capital

A company may choose to convert issued shares in the company from one class to another e.g., from ordinary shares to preference shares. Companies often carry out this procedure for several reasons including changing shareholders’ dividends or voting rights. At P.A. Duffy & Co., our expert team will be able to guide your company through the complex legal process of redesigning share capital.

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When redesignating share capital, 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.

Redesignation of share capital in Northern Ireland involves legal considerations that are essential for the proper functioning and governance of a company. Our expert team will guide your company through the legal complexities of redesignation of share capital, advising the company on the legal considerations while upholding the rights of the shareholders. These legal considerations include:

Shareholder Approval: Shareholders should be informed of the proposed changes and given the opportunity to vote on them. The exact process for obtaining shareholder approval may vary based on the company's existing articles and any applicable shareholders' agreements.
Amendment of Articles of Association: Creating new classes of shares typically requires amending the company's Articles of Association. Shareholders must approve these changes through a special resolution, usually with a 75% majority vote.
Financial Assistance Rules: The UK Companies Act 2006 restricts companies from providing financial assistance to others for the acquisition of their shares. Ensure that the creation of new share classes complies with these rules and other regulations of the Companies Act 2006.

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What is a redesignation of shares?

Companies may require adjustments to their share structure, and this can be achieved not only by issuing new shares or reducing share capital but also by modifying the classification or designation of existing issued shares. This process is commonly known as "redesignation," "reclassification," or "renaming" of shares, involving the transformation of issued shares from their current class or category to a different one. Since many companies are initially established with only "ordinary" shares, it often becomes necessary to convert some or all of these shares into different classes as the business evolves.

Ordinary shares are the default class because they entail equal voting rights, dividend entitlements, and capital interests. While the simplicity of this share structure can benefit startups and small enterprises, having a single class of shares may pose limitations for larger companies with multiple shareholders.

FAQs

Types of Shares

Ordinary shares - Ordinary shares represent the most prevalent type of shares and are typically allocated to shareholders when no other share class is established. They entitle the holder to a portion of any declared dividends and a share of the company's assets if it undergoes liquidation.

Preference shares - Preference shares, as the name implies, typically hold priority in terms of receiving dividends over other share types. However, they frequently come with restrictions on the holder's voting rights. These shares are commonly issued when a third party is making an investment in a company without seeking involvement in its overall management.

Deferred shares - Deferred shares typically restrict dividend payments to shareholders until specific goals have been met or a predetermined timeframe has elapsed. These shares are often employed to motivate and retain important company executives by granting bonuses in the form of shares instead of cash. Importantly, these rewards are contingent upon the executives staying with the company for a specified duration.

Why should a company redesignate shares?

Companies can choose or need to choose to redesignate share capital for a number of reasons, including:

Change in Share Rights: Redesignating shares allows a company to alter the rights, preferences, or restrictions associated with a particular class of shares. For instance, a company may wish to grant certain shareholders additional voting rights or dividend preferences.
Capital Structure Optimisation: It can be part of a broader restructuring to optimise the company's capital structure. For example, a company might seek to reorganise its share classes to reduce complexity and administrative burden.
Compliance: Changes in regulatory requirements or company law may necessitate the redesignation of shares to ensure compliance with the law.
Acquisitions or Mergers: In cases where a company acquires or merges with another entity, it might need to redesignate shares to align the share classes of both companies or to accommodate the requirements of new investors.

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