Is it time to reorganise your share structure?

A company’s share structure reflects the way ownership is divided among its shareholders, together with the rights that attach to each share. For an SME, that structure underpins everything from day-to-day decision making to long-term succession planning.

Many owners set up their share capital when they establish the company and then leave it untouched for years. Yet businesses evolve; new investors arrive, founders leave, and key employees emerge who deserve a stake. A static ownership model can become a straitjacket. Common triggers for reorganisation include rapid growth that demands fresh capital, bringing in strategic investors, preparing for a sale, handing the business to the next generation, or resolving a shareholder dispute or deadlock.

A well-planned share reorganisation can be the difference between a business that plateaus and a business that scales up, attracts funding, and survives generational change. Done properly, a reorganisation offers real benefits. It can provide greater flexibility to raise money without surrendering control, offer incentives that keep senior employees on board, create clearer lines of authority to reduce the risk of conflict, and make your business a more attractive proposition for lenders and venture capitalists.

In this blog, we discuss the ins and outs of reorganising your company’s share structure so that you have an understanding of what to consider.

Understanding your current share structure

Before contemplating change, take stock of your current position. This is the best time to engage your legal team, as the process involves working with your lawyers in the following steps to set out your current structure.

• Gathering the paperwork - locate the register of members, share certificates, and any shareholders’ agreement, and check 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.
• Spotting inefficiencies - warning signs include equal voting rights where some shareholders are passive investors, founders holding minority stakes because early seed shares were never adjusted, or cumbersome pre-emption clauses that deter new money.
• Keeping records up to date - accurate, accessible documentation speeds up due diligence when you need finance, reduces the risk of unresolvable disputes, and demonstrates good governance to regulators and investors.

Our team of corporate solicitors is perfectly placed to handle these matters on your behalf, and will always take the time to talk you through the documentation so that it is easy to understand.

Common methods of share reorganisation

Every business is different, but usually a share restructuring will rely on one or more of the techniques below.

Issuing new shares

If you want to raise capital or bring in a new investor, you may issue additional shares. It is important to ensure that the board has 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 the dilution effect on current owners.

Our expert lawyers can advise you on all of these issues at an early stage.

Creating different classes of shares

Multiple share classes let you 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 startup might seek to attract angel investors by issuing non-voting preference shares with a fixed 6 % dividend, allowing the founders to keep strategic control.

Transferring or buying back shares

Share transfers occur on exit of a shareholder, succession, or settlement of a dispute. Alternatively, the company itself can buy back shares to concentrate ownership, provided there is distributable profit or fresh capital to fund the purchase, the correct statutory procedure is followed (including solvency statements), and stamp duty (where applicable) is paid.

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 for employees, 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, consider the following key points:

• Articles of Association - check whether your articles permit the proposed share classes, buy-backs, or allotments. If 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). It is sensible to explain the commercial rationale clearly to avoid distrust.
• 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 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.

Ignoring these preliminaries can unravel a deal months later. A careless and hurried allotment of shares to a new investor could force you into breach of your 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 an informal conversation on reorganising your company's share structure, please contact Ian Barnard or Richard Wrightson in our corporate and commercial team on 01653 600070.  

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.