Newsletter 2015 Issue 01

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Abolition of bearer shares

The provisions for the abolition of bearer shares in sec84 of the Small Business, Enterprise and Employment Act 2015 came into effect on 26 May 2015. They prohibit UK companies from issuing any further bearer shares and all existing bearer shares must be surrendered, becoming registered shares, by 26 February 2016. Any not surrendered run the risk of being cancelled and their value lost. A company that has bearer shares must publish various notices to their bearer share holders explaining this.

Not many UK companies have bearer shares but such shares are not unknown. They are being abolished as part of trying to make company ownership more transparent. The rules are quite harsh in their operation and potentially involve the companies concerned in some cost.

No new bearer shares

By sec84 of the 2015 Act no bearer shares may be issued on or after 26th. May 2015.

By sec85 a company having provisions in its articles authorising bearer shares may remove such provisions without passing a special resolution.

Existing bearer shares

The rules are in Schedule 4.

During the 9 months after 26 May 2015 (.the surrender period.) the owner of bearer shares may surrender them, so they become registered shares and to which he is entitled to a share certificate. The company should have notified him of this right and the effects of not doing so.

If the shares are not surrendered with 7 months any subsequent transfer of them is void and all rights on the shares are suspended (including voting and dividend rights). Any dividends must be paid into an interest bearing bank account.

If the shares are subsequently surrendered before the end of the 9 months period the suspension ceases, and any dividends and interest on the bank account must be paid to the owner of the shares.

If the bearer shares are not surrendered within the surrender period, the company must apply to the court for an order cancelling the shares.

The court may make a suspended cancellation order if company has not given the appropriate notices to the shareholder; unless he had actual notice by other means. This gives the shareholder a right of surrender during the next 2 months (.the grace period.). If not, the shares are then cancelled.

On cancellation, the company must enter the cancellation date in its register of members and send to Companies House a copy of the cancellation order and a statement of capital, showing the company.s capital after the cancellation of the bearer shares. If the company is a PLC and the effect of the cancellation is that the issued share capital falls below the minimum for a PLC, it must re-register as a private company.

The company must pay into court the nominal value of the shares plus any premium, and any dividends and/or interest accrued during the suspension period. The shareholder may claim that amount, but only during the period of six months to three years after the cancellation date, and only if the court is satisfied that there are exceptional circumstances justifying his failure to surrender the shares.

There is a more detailed account on the main website.