A company’s share structure defines how ownership is divided among its shareholders and what rights each type of share carries. For a small or medium-sized enterprise (SME), this framework shapes everything from everyday management decisions to long-term succession planning.
When first establishing a company, many business owners set up their share capital and then proceed to leave it untouched for years. Yet businesses constantly evolve. New investors may arrive, founders may leave and key employees who deserve a stake may earn the chance to become stakeholders. If the company continues to change while the ownership structure remains static, it can become very restrictive. Reorganisation of the structure is often prompted during moments such as a rapid growth that demands fresh capital, bringing in strategic investors, preparing for a sale, passing on the business to the next generation or resolving shareholder disputes.
‘A carefully thought-out share reorganisation can determine whether a business grows, secures funding and withstands generational change, or whether it starts to plateau,’ says Lee Middleton, a Senior Associate in the corporate and commercial team at Nalders. ‘When handled well, a reorganisation can deliver real advantages. It can give you more flexibility to raise funds without surrendering control, help you reward and retain employees with incentives, establish clearer lines of authority to minimise the risk of conflict, and make your business a more appealing prospect for lenders and potential investors.’
Lee explores the key points to consider when reorganising your company’s share structure, to give you a clear picture of what the process involves.
Understanding your current share structure
Before making any changes, it’s important to take stock of your current position. This is the best time to involve your legal team as your lawyers can help you work through following the steps needed to document and understand your current share structure:
- Gathering key documents – locate the register of members, share certificates, and any shareholders’ agreement, and make sure that Companies House filings match your internal records.
- Mapping the rights – for each share class, confirm the voting power, dividend entitlements, and rights on a sale or winding-up.
- Identifying inefficiencies – look out for signs of imbalance such as passive investors having the same voting power as active shareholders, founders holding minority stakes as early seed shares were never adjusted, or cumbersome pr-emption clauses that deter new money.
- Keeping records up to date – well-maintained, accurate and accessible documentation speeds up due diligence when seeking finance, reduces the risk of disputes, and demonstrates strong governance to regulators and investors.
Our team of corporate solicitors at Nalders are perfectly equipped to handle these matters on your behalf and will always take the time to explain the documents clearly, making the process straightforward and easy to follow.
Common methods of share reorganisation
Every business is different, but usually a share reorganisation will rely on one or more of the methods below.
Issuing new shares
If you want to raise capital or bring a new investor into the business, you may issue further shares. Before doing so, it is important to ensure that the board has the proper authority under the articles of association or through a prior shareholder vote, that existing shareholders’ pre-emption rights (the right of first refusal) are observed or formally waived, and that you understand how the new issue may dilute current ownership.
Our expert lawyers can advise you on all of these issues at an early stage.
Creating different classes of shares
Multiple share classes allow you to separate economic benefits from control. Popular examples include:
- “A” Ordinary Shares – full voting, full dividends; typically held by founders;
- “B” Ordinary Shares – no votes but entitled to dividends, ideal for passive investors; and
- Growth Shares – attract employees by rewarding future increase in value.
For example, a tech start-up might seek to attract angel investors by issuing non-voting preference shares with a fixed 6% dividend, allowing the founders to retain strategic control of the business.
Transferring or buying back shares
Share transfers occur on exit of a shareholder, succession, or settlement of a dispute. In some cases, the company may instead choose to buy back shares to concentrate ownership, This can only be done if the company has sufficient distributable profits or fresh capital to fund the purchase, follows the correct statutory procedure (including solvency statement), and pays stamp duty (where applicable).
Implementing employee share schemes
To retain and motivate staff, SMEs often adopt schemes such as Enterprise Management Incentives (EMI) or Company Share Option Plans (CSOP). These offer tax-efficient rewards, align staff interests with growth targets and require minimal immediate cash outlay for the company.
Legal and practical considerations (pre-commencement)
Reorganising share capital is not a quick administration task. Before you start, its worth considering the following key points:
- Articles of Association – confirm whether your articles permit the proposed share classes, buy-backs, or allotments. If they do not, you will need to pass a particular type of shareholder vote (known as a ‘special resolution’) to amend them.
- Shareholder approval – most changes require shareholder approval, usually by ordinary (51% + of shareholdings voting in favour) or special resolution (75% + of shareholdings voting in favour). Explaining the commercial rationale clearly will maintain trust and avoid unnecessary friction.
- Board minutes and filings – directors must record their decisions in board minutes and file the relevant forms at Companies House within the statutory deadlines.
- Tax advice – altering shareholder rights can have implications for capital gains tax, income tax, and stamp duty for both the company and the shareholders. Early specialist tax advice is essential.
- Valuation – where the shares are being issued to employees or bought back, HMRC often expects a defensible market valuation.
- Lender consent – check whether existing loan agreements restrict share changes, as lender consent may be required.
Overlooking these preliminaries can unravel a deal months later. A careless and hurried allotment of shares to a new investor could inadvertently breach of bank covenants, triggering costly renegotiations of your credit terms. We can advise on all of these issues at an early stage, so that you avoid such problems from occurring.
How we can help
Our corporate team can conduct a thorough diagnostic review of your current share capital, governance documents, and commercial objectives, and design a bespoke structure – whether that is alphabet shares, a growth share scheme, or a full capital reduction – aligned with your expansion plans.
We can also project-manage the implementation, drafting resolutions, liaising with accountants on tax, and coordinating valuations.
For a conversation on reorganising your company’s share structure, please contact Lee Middleton in our corporate and commercial team on 01872 241414 or email ldm@nalders.co.uk. Nalders LLP has offices in Truro, St Austell, Falmouth, Newquay, Camborne, Helston and Penzance, Cornwall.