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Case law: Issuing a new class of shares in a company can inadvertently change the rights of an existing class, with possible tax and other consequences

Companies planning to issue a new class of shares, or vary an existing class of shares, should consider whether the issue or variation may also affect the rights attached to some other class of shares in the company, even if that is not expressly stated in the relevant shareholder decisions.

Legal Alert

This update was published in Legal Alert - March 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A company issued a new class of shares with complex rights. The effect of the rights attached to the new shares was, inadvertently, to also alter the rights of existing shares in the company - although this was not expressly stated in the shareholder decisions.

As a result, the existing shares ceased to qualify for tax relief under the Enterprise Investment Scheme, to the detriment of the owners of those shares.

While this case involved an issue of new shares, variation of the rights of one existing class of shares can also amount to a variation of shares in another class in the same company.

Operative date

  • Now

Recommendation

  • Companies planning to issue a new class of shares, or vary an existing class of shares, should consider whether the issue or variation may also affect the rights attached to some other class of shares in the company, even if that is not expressly stated in the relevant shareholder decisions

Case ref: Abingdon Health Ltd v HMRC [2016] UKFTT 800

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.