B share scheme definition

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Returning capital to shareholders—B share schemes

Returning capital to shareholders—B share schemes A B share scheme returns excess capital to a company’s shareholders through the creation of B shares (so called to distinguish them from the company’s ordinary shares), followed by the payment of a dividend in respect of the B shares or their redemption, buy back or cancellation. Historically, it has most often been used by listed companies, although not exclusively. A B share scheme is no longer a commonly used method of returning excess capital to shareholders. This is because the principal reason for a company to use a B share scheme was its tax advantages. Before the abolition of advance corporation tax (ACT) in 1999, it was often attractive for a company to use a B share scheme to structure a return of excess capital as a capital repayment (ie a return of the capital originally invested in the company), rather than an income distribution (such as a cash dividend), as it avoided the requirement for the company to account for ACT. After 1999, a B share scheme remained a popular method of returning excess capital to shareholders because it gave each shareholder the ability to elect to have the cash they received treated as income or capital for tax purposes, each which would entail a different tax treatment. However, this right of election was abolished in 2015. For more

Share capital—glossary of terms

Share capital—glossary of terms A AIM A securities market owned and operated by the London Stock Exchange plc, with lighter entry requirements and continuing obligations than the main regulated markets. Formerly the Alternative Investment Market, now simply known as AIM. AIM company A company with a class of its shares traded on AIM. Acquisition accounting An accounting methodology where a buyer incorporates acquired assets and liabilities in its balance sheet at the date of acquisition, with any difference between the price paid and the fair value of the net assets acquired being purchased goodwill. Allotment Shares in a company are taken to be allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of the shares (Companies Act 2006, s 558). Allotment is followed by the issue of the shares. Allotment authority The relevant authority under CA 2006, ss 549–551 giving the directors authority to allot shares in the company, or to grant rights to subscribe for, or to convert any security into, shares in the company. In a private company with only one class of shares the directors may allot shares unless prohibited from doing so by the articles of association. For all other companies such authority must be derived from express power in the articles of association or by a resolution of the company. Allotment of equity securities CA 2006, s