Decoding Share Reclassification to Enhance Your Company's Structure
- Sue Hearn
- 7 days ago
- 3 min read
Introduction
Are you thinking about restructuring your company’s shares?
Whether you want to raise capital, offer better incentives to employees, or refine shareholder rights, reclassifying shares could be the key. But what does it actually involve, and why do businesses choose to do it?
In this blog, we’ll explain share reclassification, its strategic reasons, and its impact on both the company and shareholders. Whether you're preparing for a merger, attracting investors, or adjusting dividend rights, understanding reclassification is key to making informed business decisions.
What is Share Reclassification?
Share reclassification, re-designation or renaming, involves changing the type of a company’s existing shares and (possibly) adjusting their rights. This allows businesses to refine their share structure as they grow.
Many companies begin with one class of ordinary shares, giving all shareholders equal voting rights and dividends but as the business expands introducing different share classes may become necessary.
Reasons for Share Reclassification
Companies reclassify shares for various strategic reasons. Common motivations include:
1. Attracting New Investors – Offering specific benefits like preferential dividends or voting rights.
2. Employee Incentives – Providing stock options or equity rewards without giving up voting power.
3. Adjusting Shareholder Rights – Modifying voting power or dividend entitlements to match the company's evolving structure.
4. Raising Capital Without Losing Control – Issuing shares with limited or no voting rights to bring in investment while maintaining decision-making control.
5. Streamlining Corporate Structure – Simplifying share structure to align with long-term goals.
By reclassifying shares, companies can better meet their needs, whether securing investment, motivating employees, or optimising control.
The Process of Share Reclassification
1. Confirm the Articles of Association Allow Share Redesignation
Specifically, articles of association should be free from clauses that limit or block class conversions.
If the current articles only support a single class of ordinary shares, they may need to be updated.
2. Resolution for Share Redesignation and Class Consent
An ordinary resolution is assumed to be sufficient to reclassify shares unless the Articles require a higher majority.
If the company wants to differentiate the newly re-classified shares to allow, for example, different voting rights or different rights to dividends, it will need to obtain relevant class (shareholder) consent in order to do this. That is, either the consent in writing from the holders of at least three-quarters in nominal value of the issued shares of that class or a special resolution passed at a separate general meeting of the holder(s) of that class sanctioning the variation.
3. Submit the Forms
To reclassify or rename a share class, submit form SH08 to Companies House. If the reclassification also changes share rights, submit form SH10 as well.
4. Update the Register of Members
After the share reclassification, the company’s registers need to be updated with the new share class, share value, and the number of shares held by each shareholder.
5. Issue New Share Certificates
Within two months of the reclassification, new share certificates need to be issued. Shareholders holding shares in more than one class should receive separate certificates for each class. Old certificates need to be marked as cancelled.
6. Update the Next Confirmation Statement
The next confirmation statement should include an updated statement of capital and a list of shareholders reflecting the changes resulting from the reclassification.
It Doesn’t Always Go Smoothly! DnaNudge v Ventura Capital
In the case of DnaNudge v Ventura Capital, the Court of Appeal examined the validity of a company’s attempt to convert Series A preferred shares into ordinary shares without obtaining the required consent from the Series A shareholders. The court ruled that the conversion was void, as it constituted a variation of the Series A shareholders’ rights, which required their approval. This case highlights the importance of carefully drafting automatic conversion clauses in a company’s articles of association, especially when shareholder consent is involved.
The lesson: Companies should ensure that such provisions are clearly stated to avoid legal disputes and ensure compliance with shareholder rights.
Conclusion
Reclassifying shares is a powerful tool for companies looking to adjust their structure, attract investors, or incentivise employees. However, it’s essential to navigate the process carefully and ensure that all legal requirements are met as each step plays a crucial role in ensuring a smooth transition. By taking the time to plan and implement share reclassification properly, companies can align their ownership structure with their evolving business goals while protecting shareholder interests.
Ready to explore share reclassification for your business? Whether you’re looking to streamline operations, raise capital, or refine shareholder rights, Claric Legal can help guide you through the process.
Contact us today to ensure your share structure supports your long-term business goals.
Richard Jenkins 024 7698 0613 or richard@clariclegal.co.uk
This blog should not be relied upon for legal advice. If you would like any further information or advice, please email richard@clariclegal.co.uk.
