Share split and subdivision explained

Companies will do a share split, whereby each share is subdivided into two or more shares. This means that each shareholder will have more shares but each share will have a lower nominal value.

What is a share split?

A share split or share subdivision is where the shares in an existing share class are each subdivided into two or more new shares.  A straightforward split will not change the shareholders’ rights, meaning that following the split the voting control and rights to dividends will be unchanged. It just changes the number of shares and the nominal value of each share.

Share splits are often a straight 2 new shares for every old share (2 for 1), 10 for 1 or 100 for 1 but can be 5 new shares for every 3 shares or even split the share class into two different share classes – so, as an example, for every ordinary £1 share held each shareholder gets one ordinary 10p share and nine deferred 10p shares.  The legal requirements for this is that each £1 ordinary share is split into ten ordinary 10p shares and then nine tenths of the ordinary shares are converted to deferred 10p shares.

In the 5 for 3 situation shareholders may not have a holding that is exactly divisible by 3. This and other similar situations would result in remainder shares in the share class being split.  These remainder shares then need to be dealt with.

Why split the company’s shares

The main reason for doing a share split is to improve the liquidity in the company’s shares.

For instance, an owner of just 1 ordinary share with nominal value of £1 cannot sell half a share but if there were 100 ordinary shares with nominal value of 1p each the owner could choose to sell 50 shares.  Equally, a new investor may be reluctant to invest £1,000 and only receive 1 share whereas they would be more comfortable receiving 1,000 shares with a lower nominal value of £1 per share, albeit for exactly the same percentage interest in the company.

Share splits are frequently done by publicly quoted companies as it reduces the share price in line with the split but does not reduce the overall market value of the company. In fact, it can lead the overall market value to increase as it makes the shares more affordable to individual investors and hence can increase the demand for them.

How to do a share split in 7 easy steps

Once a company has decided to split its shares, it’s quite straightforward to do.

Here we set out the simple steps for a company that only has one fully paid share class when splitting 100 ordinary £1 shares into 10,000 ordinary 1p shares.  If you are at all unsure about any of the steps or the consequences then you should take professional advice from an accountant, solicitor or other professional.

We start with some preliminary considerations that must always be considered before performing a subdivision of shares:

There is, following the enactment of the Companies Act 2006, no longer a requirement for the company’s articles of association to permit the subdivision of shares. However, you will need to check that the Articles do not actively restrict or exclude the right to split the company’s shares.  If the company was formed with the model articles then, provided they have not been amended, you will have the right to split or subdivide your shares.

If the company’s articles of association do not allow a subdivision then to proceed these would need to be amended.  See our article on amending articles of association.

Although the subdivision will leave each shareholder with the same percentage interest after the split as before, it is worth checking if there is a shareholders’ agreement and whether there are special provisions that need to be observed – for example, the company may need to give special notice before continuing with the subdivision.

It is all very well creating millions of new shares but the benefit of increased liquidity could be undone if the number of shares would become unwieldy. It’s worth considering whether there are options other than a split to achieve the same aim.

Assuming the above do not raise any issues then the company can continue with splitting the shares.

Provided the articles allow a split, it is sufficient that this is an ordinary resolution. We’ve created a free template resolution to split shares that you can adapt and use. Given there are likely only to be a few shareholders it may be as well to pass this as a written resolution, although a resolution passed at a meeting of shareholders is equally acceptable.  This resolution does not need to be sent to Companies House but should be kept with the company records.

At the moment the SH02 form needs to be submitted either using the Companies House document upload process  or on paper. You will need to complete sections 1, 2, 4, 7 and 10 and sign at section 11.  When using Inform Direct the relevant sections are completed for you leaving you to just sign the form before sending it to Companies House. Once completed and signed, the form can currently be uploaded to Companies House using their document upload service.

These examples of sections 4 and 7 show 100 shares of £1.00 nominal value being split into 10,000 shares of £0.01.

The prescribed particulars required in section 10 will be the same particulars as those of the old £1 shares. In another article, we’ve looked at what needs to be included in the prescribed particulars for a share class.

The register of shareholders (also referred to as the register of members) will need to be amended to show the number of shares held in the new nominal value by each shareholder.

Sometimes the old share certificates may be called in for amendment but it is more common to send members a notice that the share split has taken place and enclosing a new share certificate. Increasingly, a new certificate is what shareholders will expect to receive.

Previous versions of this article were published on 10 August 2015 and 12 June 2018  (updated for the revised form SH02) with the latest version updated to cover Companies House’s document upload process.