Share consolidation explained

Companies sometimes consolidate shares so that the number of shares in issue is reduced but each share has a higher nominal value and hence each share has a higher market value.

What is a share consolidation?

A share consolidation is the opposite of a share split and, indeed, is sometimes referred to as a reverse share split.  A share consolidation is where a set number of existing shares in a share class are consolidated into one share.  Like a split this will not change the shareholders’ rights, meaning that following the split the rights to dividends and voting rights will be unchanged. It merely alters the number of shares and the nominal value of each share.

Share consolidations will often be to consolidate every 2 existing shares into 1 share (2 into 1), 10 into 1 share or 100 into 1 share but can be to consolidate every 7 existing shares into 5 new shares.

Remainder holdings in the old share class will often arise from share consolidations as a shareholder’s holding in the old shares may not be exactly divisible by the consolidation factor.  These remainder shares will need to be dealt with.

Why consolidate the company’s shares

The main reasons for doing a share consolidation are to either tidy up the company’s share capital or reduce the number of shares received for a certain amount paid.   Publicly quoted companies will sometimes do share consolidations to increase the underlying share price in an effort to make them more attractive to investors.

For instance, an investor wants to buy £1,000 worth of existing shares in a company whose shares are worth 1p per share.  The investor would then receive 100,000 shares for their £1,000. If, prior to the purchase,  the company consolidated every 100 1p shares into 1 £1 share the investor would receive 1,000 £1 shares for £1,000.  The investor would have the same interest in the company but just a lower number of shares with a higher nominal value.

How to do a share consolidation in 7 simple steps

Here we set out the simple steps for you to complete when your company is consolidating one of its share classes, which mirror those for a share split.

If you’re not sure about the steps or their consequences, you should consider taking profession advice from your solicitor, accountant or another professional.

Your company’s articles of association no longer need to specifically allow the consolidation of shares.  However, you will need to check that they do not restrict or exclude the right to consolidate.  If the company was formed with the current model articles and it is still governed by them then they will not prevent you consolidating the shares.

Although all shareholders will have the same interests after the consolidation as they had before, it is worth checking if there is a shareholders’ agreement and whether there are special provisions that need to be observed – for example, whether notice needs to be given before continuing with the share consolidation.

The company needs to decide how any remainder shares in the old share class are to be dealt with – these will often be purchased and then immediately cancelled by the company.

Provided the company’s articles of association allow a share consolidation, this only needs to be an ordinary resolution.  You can adapt and use the template resolution to consolidate shares we’ve created. Where your company only has a few shareholders it may be simplest to do this as a written resolution, but a resolution passed at a meeting of the shareholders is equally valid.

You do not need to send an ordinary resolution to Companies House but it should be kept with the company’s records.

Currently this needs to be a paper or electronic copy as Companies House do not support electronic software submission for form SH02.  You will need to complete each of sections 1, 2, 3, 7 and 10 and sign at section 11.  Once completed the form can either be sent in the post to Companies House or uploaded using Companies House’s document upload process.

These examples of completed sections 3 and 7 show the consolidation of 100,000 ordinary shares of £1 each into 25,000 ordinary shares of £4 each (i.e. a 4 into 1 consolidation).

The prescribed particulars entered in section 10 will be the same as those of the existing shares that are being consolidated. We explain elsewhere what needs to be included within the prescribed particulars for a share class.

The shareholders’ register and other company records must be updated to show the revised number of shares held in the new nominal value by each shareholder.

It is usual to send shareholders a notice that the consolidation has taken place, enclosing a new share certificate and stating that all existing certificates have been cancelled.  However, it is possible that instead the old certificates may be called in for amendment.

A company can consolidate shares that are unpaid or partly paid.  If you do, the proportion between the amount paid and unpaid would remain as before.

This articles was originally posted on 1 December 2015 and has now been updated to reflect that electronic versions of the form SH02 can be uploaded to Companies House using their document upload process.