Shares and Share Premium with Relevant Regulations for a UK Company Incorporation

04 Jan

The first thing to know while getting guidance for how to start a company in UK is to know how to have effective members and other management after UK company incorporation. The members are the subscribers of the memorandum when registering a new business UK. The members are given shares in the company, hence entitling them as shareholders. In this article, we will have detailed discuss on shares and share premium, and the different regulations mentioned in Companies Act.


Shares are allotted while registering a new business UK to gain investment in the company. The description given in the case study of Borland’s Trustee, for a share depicted that the shares may be used for the denotation of 3 things:

  • The monetary stake of the shareholder in the corporate body. The liability of a shareholder and the rights regarding capital and income receipts via the company are included in it.
  • The interest of the shareholders as an association, in the corporate body. It may include rights given to members, such as voting rights and other rights given by the statute and company’s articles.
  • The right given to the shareholders to own the property, that can be bought, auctioned, charged etc. and can include legitimate and equitable interests.

Generally, the share capital required to open a company in London or UK can be divided into shares. These shares are then acquired by members of the company. However, shares may seem simple, they can be divided into different types. A general perception about ordinary shares is that they are not differentiated upon their issuance. In situations where the shares have been classified, and each class is associated with special rights, then the rest of the shares will be considered as ordinary shares. If the shares have been classified as preference shares, then the shares that are ordinary will be termed as equity shares. However, a more explanatory definition is given in Companies Act 2006 for equity shares.

Share Premium

Share premium is also known as the surplus capital of any corporate body. It is actually termed as the extra money other than the standard value of shares that the company earns after allotting its shares to the shareholders. Companies Act 1985 provides certain sections, namely, from Section 130-134 that give rulings for share premium after open a company in London or UK.

A Company’s Usage of its Share Premium

Section 130 of Companies Act 1985 states that:

  • When a company makes issuance of its shares at some premium, either in the form of cash or in any other form, an amount which equals the premiums’ aggregate worth should be kept in an account for share premiums.
  • This share premium can be utilised in making payment for the shares that have not been issued, for their allotment to the shareholders in the form of bonus shares that are fully paid or may be utilised in writing off either of these:
  • The preparatory expenses borne by the company; or
  • Any commission given or any other expense that was required for the issuance of shares or debentures or for any discount on either of these.

Or in giving the premium that is payable on redeeming a company’s debentures.

  • In relation to this, the rulings given for the share capital’s reduction by this Act will be applicable on the share capital considering that the share premium is included in the company’s share capital that is paid.
  • The sections following this section, that is, Sections 131 and 132, lifts off some of the bindings of this section. And by “issuing company” the sections refer to issuance of shares by the company as stated above.

Waiving off Restrictions for a Merger

Section 131 of Companies Act states that:

  • Along with the exemption given by Section 132(8), this section is applicable on the company making issuance, that holds a minimum of 90% equity in any other company, pursuing an arrangement that provides for allotting the issuing company’s equity shares on conditions that the shares’ consideration is to be given by either of the following:  
  • Via transferring or issuing, to the issuing company, the shares of equity in another company.
  • Via cancelling shares that the issuing company does not hold.
  • When the shares that are issued pursuing an arrangement that provides for allotting the issuing company’s equity shares either for acquiring those shares of equity or cancelling them, are given away at a premium, then Section 130 is inapplicable on any such premium.
  • In cases where it is also provided by the arrangement, regarding allotting any shares belonging to the issuing company, on conditions that the transfer or issuance of any other company’s non-equity shares to the issuing company should provide for those shares’ consideration. Or, the consideration may be provided via revocation of such shares in that company, which the issuing company does not hold. The leniency given by the second provision of this section is applicable on issuing company’s shares, given on the condition following the arrangement.
  • Contingent on the next provision, by an issuing company, a reference is to be made, for this section, to a company holding 90% equity in any other company, following the arrangement like the one specified by first provision of this section, if as a result to a revocation or acquiring of shares of equity in that company, (following that arrangement) it has a holding of shares of equity in that company, (whether either all of them or some of them are gained by the virtue of that arrangement or not), of an aggregated worth that equals 90% or greater nominal value of the equity share capital of that company.
  • This section is only applicable on another company’s equity share capital that has been classified into different groups, if each group of share capital is in conformity with the requirements given by the first provision of this section.
  • If a company that is holding or subsidiary company of the issuing company, or is a subsidiary of the holding company of issuing company, then, the shares held by any such company or by its or their aspirants, will be considered as the shares owned by the issuing company, for the matters regarding this section.
  • Regarding a company and the company’s share and capital, the below mentioned definitions are applicable for the matters concerning this section:
  • “Equity shares” refers to shares that the equity share capital of the company comprises of.
  • “Non- equity shares” refers to shares that the share capital of equity does not comprise of in the company.
  • “Arrangement” refers to any contract, plan, or arrangement, with any arrangement made under approved by the virtue of Section 425 or Section 110 of IA.
  • The leniency giving by this section becomes inapplicable if the shares were issued prior the date 4th February 1981.

Lifting off Restrictions in relation to Group Reconstructions

Section 132 of Companies Act 1985 states that:

  • The provisions of this section are applicable only when the issuing company:
  • Is a subsidiary to another company and is completely owned by it.
  • And, makes allotment of shares in the parent company or any other completely owned subsidiary of its parent company, for transferring the assets excluding cash, provided they belong to any transferor company, which is a group member of companies comprising the parent company as well as all of its subsidiaries that are completely owned by the parent company, to the issuing company.
  • In situations where the issuance of shares in the issuing company, whose allotment is done regarding a transfer, is done at a premium, it is not mandatory for the company to transfer to the account of share premium, any amount surplus to the minimum premium amount.
  • The previous provision refers to any amount by which the base value of the shares’ consideration that have been allotted, is surplus to the aggregated nominal amount of those shares.
  • For matters concerning the 3rd provision of this section, the base value of the shares’ consideration that have been allotted, refers to a sum by which the base value of the transferred property is greater the base value of that company’s liabilities (if any), deemed by the issuing company as included in the consideration of the transferred property.
  • For the matters concerning the previous provision:
  • The base value of the transferred property refers to:
  • The amount that costed to the transferor company for those properties; or
  • The amount which is stated for those properties in the accounting records of the transferor company just prior the transfer.
  • Whichever amount is less, also,
  • The base value for the liabilities deemed, refers to the sum which is stated for them in the accounting records of the transferor company just before the transfer.
  • The leniency given by this section remain inapplicable before the date of enforcement of the Companies Regulations 1984.
  • To the limit that the leniency given by this section would have been permitted by Companies Act 1981’s Section 38 in its original form, the leniency is applicable, in cases where the issuance of shares was done before the date of enforcement of those regulations, however, not before 4th of February 1981.
  • Section 131 is inapplicable on any case that falls within the scope of this section.

Supplementary Provisions for Section 131 and 132

Section 133 states that:

  • A sum that represents the premium or its part on shares that a company issues, which under Sections 131 or 132 of Companies Act 1985, or Consequential Provisions Act’s Section 12 is not made a part of the share premium account, may be ignored in ascertaining the amount at which the shares or any other consideration given for the issued shares that has to be included in the balance sheet of the company.
  • References given in this chapter to the following:
  • One company acquiring shares in any other company; and
  • Issuance of shares or their allotment to, or transferring them to, or by a corporate body, takes into consideration, the gaining of any of such shares by, as well as the issuance and allotment or their transfer to, or by aspirants of that corporate body and Section 132 reference to the transferor company is to be deemed accordingly.
  • Wherever this chapter refers to transferring shares in a company, it includes, a right’s transfer, to be filed in the register of members of the company in relation to those shares.
  • Wherever, in Sections 131 to 133 the word ‘company’ is used except in ‘issuing company’, it refers to any corporate body.

Extension or Restriction of the Leniency given by Section 130

Section 134 of Companies Act 1985 states that:

  • The State’s secretary is authorised to formulate a provision that may seem appropriate to him, via the rulings in a statutory instrument for the following purposes:
  • For giving relief to a company, from the rulings provided by the Section 130, regarding the premiums except cash premiums.
  • Or, for imposing restrictions or modifying in any other form, the leniency or relief from the requirements outlined by this chapter.
  • The rulings given by this section may formulate different provision for varying situations, or groups of case and it may also include subordinate or supplementary clauses as seem appropriate to the State’s Secretary.
  • It is not permitted to formulate any such ruling, unless it is drafted in an instrument and presented to the Parliament and given consent for by every house of the Parliament.
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