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What process should be followed to convert one class of shares in a private company limited by shares into another?

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Published on LexisPSL on 07/02/2017

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  • What process should be followed to convert one class of shares in a private company limited by shares into another?

What process should be followed to convert one class of shares in a private company limited by shares into another?

There is no specific statutory provision in the Companies Act 2006 (CA 2006) or elsewhere permitting the conversion of shares from one class to another and there are differing views as to how such a conversion may be achieved. The methods that may possibly be used to carry out such a conversion are discussed in commentary Alteration of capital: Tolley's Company Law Service [S5013]. Whatever method is used, it is important that the conversion of one class of shares into another must always be done in such a way as to preserve the aggregate nominal value of the shares converted in order to avoid an unintended and unlawful reduction of capital.

Some commentators argue that the provisions of CA 2006, ss 617(3)(a) should be followed to convert shares from one class to another, suggesting that shares of that class should be first consolidated (if necessary) and then sub-divided into shares

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