The funding for a company that is raised through the issue of shares.

It is a fundamental rule of English company law, sometimes known as the rule in Trevor v Whitworth, that a limited company having a share capital must maintain that capital; a company must not reduce it or return it to shareholders, except as prescribed by law. This capital maintenance rule is intended to protect a company’s creditors by ensuring that the assets that represent the share capital of a company remain available to them for future recourse. It underlies many of the provisions of the Companies Act 2006 (CA 2006) relating to share capital, including the requirements and restrictions relating to: • the nominal value of shares • payment for shares • distributions to a company’s members • reductions of capital • the redemption of shares • share buybacks, and • the provision of financial assistance by a company for the acquisition of shares The amount of shares that a company can issue to investors was historically limited by the amount of authorised share capital set out in its memorandum of association on incorporation. A company could not issue

Background Companies incorporated under the Companies Act 2006 (CA 2006) are either established on a limited or unlimited basis. This means that the liability of the members of the company is either limited or unlimited by its constitution. If the company is limited (whether private or public), it can either be limited by shares or limited by guarantee. In the case of a public company limited by guarantee, it must also have a share capital. Regardless of whether a company is public or private, if it is limited by shares, the liability of its members is limited to the amount, if any, unpaid on their shares. If it is limited by guarantee, the liability of its members is limited to the amount of their guarantee. What is a share and share capital? The generally accepted commercial meaning of share capital is the funds of a company raised by the issue of shares (whether on incorporation or subsequently) in return for cash or other permitted forms of consideration.

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

Where a person owns all or part of a company in certificated form, the share certificate is the physical paper document issued by the company to represent such ownership, along with entry of the shareholder’s name in the register of members. Compare with bearer share, and see certificated/in certificated form.

The Directors [insert company name] (the Company) [insert company registered office address] [insert day and month] 20[ insert year] Dear [Directors OR Secretary], Share certificate indemnity [I OR We] confirm that: 1 [I am OR We are] the registered legal and beneficial owner[s] of [insert number] [ordinary] shares of £[1] each in the capital of the Company, as set out in the table below (the Shares): Share certificate number (if known) Amount and class of shares Name and address of registered holder Date of share certificate (if any) 2 [To

The Directors [insert target company name] (the Company) [insert target company registered office address] [insert day and month] 20[insert year] Dear Directors, Share certificate indemnity [I OR We] confirm that: 1 [I am OR we are] the registered legal and beneficial owner[s] of [insert number] of [ordinary OR [insert class]] shares of £[1 OR [insert value]] each in the Company, as set out in the table below (the Shares): Share certificate number (if known) Amount and class of shares Name and address of registered holder Date of share certificate (if any) 2 [to [my OR our] best knowledge and belief, ] [an ]original certificate[s] of title in respect of the Shares

Shares in a company can be issued as certificated shares or uncertificated shares. Shares issued by private companies and unlisted public companies are usually held in certificated form, while shares in listed companies and AIM companies are usually held in uncertificated form. Shares This Practice Note is concerned with the law and practice relevant to share certificates, which are only issued in relation to certificated shares. Certificated shares Shares in a company are held in certificated form if: • the company has issued a physical share certificate for the shares, and • the owner of the shares has their name entered in the company's register of members A person is only a member of a company if they have agreed to become a member and have had their name entered in its register of members. Every company limited by shares is required by the Companies Act 2006 (CA 2006) to keep a register of members. The information that must be recorded in the register of members includes the name and address of each member, the date on which they

This Deed is made on [insert day and month] 20[insert year]. Parties 1 [insert name of Chargor], a company incorporated in England and Wales with registered number [insert company number] whose registered office is at [insert address] (the Chargor); and 2 [insert name of Lender] of [insert address] (the Lender). Recitals: (A) The Lender has agreed to make available a loan facility to the Chargor on the terms and conditions set out in the Facility Agreement (as defined below). (B) It is a condition precedent to the availability of the loan facility that the Chargor enter into this Deed for the purpose of providing security in favour of the Lender in respect of the Secured Obligations (as defined below). It is agreed as follows: 1 Definitions and interpretation 1.1 Definitions In this Deed, unless otherwise provided: [Company • means [insert name of company in which the Chargor holds the shares and investments], a company incorporated in England and Wales with registered number [insert company number] whose registered office is at [insert address];] Facility Agreement • means the facility agreement entered into on [the date of this Deed OR [insert date]] between the Chargor

This Deed is made on [insert date] 20[insert year] Parties 1 THE COMPANIES identified in Schedule 1 (each a Chargor and together the Chargors); and 2 [insert name of security agent] as security agent and trustee for the Finance Parties on the terms and conditions set out in the [Facilities Agreement OR Intercreditor Agreement OR Security Trust Deed] (the Security Agent). Recitals: (A) The Finance Parties have agreed to make available loan facilities on the terms and conditions set out in the Facilities Agreement (as defined below). (B) It is a condition precedent to the availability of the loan facilities that each Chargor enter into this Deed for the purpose of providing security in favour of the Security Agent in respect of the Secured Obligations (as defined below). It is agreed as follows: 1 Definitions and interpretation 1.1 Definitions In this Deed, unless otherwise provided: [Additional Chargor • means a member of the Group who becomes an Additional Chargor in accordance with Clause 26 (Accession of an Additional Chargor);] [Deed of Accession • means a deed of accession substantially in the form set out in Schedule 3

Insert the following definitions as new definitions into clause 1 of Precedent: Share purchase agreement—pro-buyer—corporate seller—conditional—long form: 1. Definitions and interpretation Consideration Shares • means the Ordinary Shares to be allotted and issued to the Seller pursuant to clause [3 OR [insert clause number for consideration clause]] [ and any shares resulting from a capitalisation, sub-division or consolidation of the shares by the Buyer prior to Completion]; Ordinary Shares • means the ordinary shares of £[insert number] each in the capital of the Buyer; [and] Delete clause 3 of Precedent: Share purchase agreement—pro-buyer—corporate seller—conditional—long form and replace it with the following new clause 3: 3. Consideration 3.1 The consideration for the Sale Shares shall be £[insert amount] which shall be satisfied as follows: 3.1.1 the sum of £[insert amount] shall be paid in cash on Completion in accordance with clause 7; and 3.1.2

Some company acquisitions that involve a corporate buyer will be structured so that the consideration payable is the issue of new shares by the buying company. The selling shareholders exchange their existing shares for new shares issued by the corporate buyer instead of, or as well as, receiving cash.