Nominal or par value
Section 542(1) CA 2006 provides that the shares in a limited company having a share capital must have a fixed nominal value. Section 542(2) CA 2006 provides that any allotment of a share that does not have a fixed nominal value is void. The nominal or par value of a share is the minimum subscription price for that share. It represents a unit of ownership rather than the actual value of the share. Common nominal values for ordinary shares are 1p, 5p or £1.
Section 580 CA 2006 provides that a share may not be allotted/issued by a company at a discount to its nominal value. However, it may be allotted/issued for more than its nominal value, and the excess over nominal value is known as the ‘premium’. The market value will often be much higher than the nominal value of the share.
Issued, allotted, paid-up and called-up shares
The amount of shares in issue at any time is known as the issued share capital (ISC). This is the amount of share capital that will be shown in the company’s balance sheet in its accounts. This was the same under CA 1985.
A company’s ISC is made up of:
- shares purchased by the first members of the company, known as the ‘subscriber shares’; and
- further shares issued after the company has been incorporated, to new or existing shareholders. New shares can be issued at any time provided that the correct procedures are followed.
Allotment is defined in s.558 CA 2006. Shares are said to be allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares. This term is often used interchangeably with the issue of shares but the terms have different meanings. There is no statutory definition of ‘issue’ but it has been held that shares are only issued and form part of a company’s issued share capital once the shareholder has actually been registered as such in the company’s register of members, and his title has become complete (s.112(2) CA 2006 confirms that full legal title to shares is only achieved once a person’s name is entered in the company’s register of members).
It is not necessary for shareholders to pay the full amount due on their shares immediately. The amount of nominal capital paid is known as the ‘paid-up share capital’. The amount outstanding can be demanded by the company at any time. Once demanded, the payment has been ‘called’. It is increasingly rare for shareholders not to pay the full nominal value of their shares on issue.
The definition of ‘called-up share capital’ in s.547 CA 2006 is the aggregate amount of the calls made on a company’s shares and the existing paid-up share capital. Given that shares are rarely not fully paid up, this term is not regularly used.
What is the difference between allotting and transferring shares?
An allotment of shares is a contract between the company and a new/existing shareholder under which the company agrees to issue new shares in return for the purchaser paying the subscription price.
A transfer is a contract to sell existing shares in the company between an existing shareholder and the purchaser. The company is not a party to the contract on a transfer of shares.
It is crucial to remember the difference between an allotment and a transfer of shares as the procedure to effect an allotment and a transfer of shares is different.
Treasury shares
These are shares that have been bought back by the company itself and are held by the company ‘in treasury’. Treasury shares are issued shares being held by the company in its own name, and the company can subsequently sell those shares out of treasury. Note that although such a sale of shares is a transfer, not an issue, of shares, s.561 CA 2006 pre-emption rights (see s.560(3)) and s.573 CA 2006 disapplication of pre-emption rights will apply. The company can also choose to cancel treasury shares at any time or transfer them to an employee share scheme.