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Shareholdings

Transfer of Shares

The definition of a transfer for the purpose of this section is where one shareholder wishes to pass their holding in the football club to another person or organisation for no payment. This is clearly useful for Supporters’ Trusts seeking to acquire a collective shareholding.

Essentially this is not a complicated process, although there are one or two technicalities to be aware of. A shareholder should have a valid share certificate in their possession before starting the transfer process. If the shareholder holds the certificate electronically with a stockbroker they will most likely understand how to enact the transfer themselves. However their broker will be able to advise them if there is any doubt. There is also a different procedure for Public and Private companies, as described below.

Public companies (PLC)

Certificated (paper) shares in a publicly quoted company can be transferred simply by using a “Stock Transfer Form” which is available from stockbrokers, company registrars, and legal stationers. They should also be available online, and many online stockbrokers will have this form on their site in downloadable form. Electronically held shares are simple to transfer, and the broker will act on their client’s instructions.

Paper certificates

Assuming the shares are held in certificate form the process is simple. The shareholder fills in the Stock Transfer Form and sends this along with the certificate to the Registrar. The Registrar will alter their records accordingly and issue a new certificate to the new owner, i.e. the Supporters’ Trust.

Lost certificates

If the shareholder has lost their certificate they will need to apply for a “Letter of Indemnity” and receive a new certificate before starting the transfer process. There will normally be a charge for acquiring a new certificate, but this will be explained by the Registrar.

Electronic holdings (Nominee or CREST accounts)

If the shareholder who is initiating the transfer holds the stock in electronic form (rather than having an actual share certificate) they will need to speak to their stockbroker about the transfer process. It should be very straightforward and the broker will handle the transfer on instruction from the shareholder.

Receiving the shares

The above advice has been given on the assumption that the Trust will receive shares in paper form. If the Trust has its own Nominee or CREST account in order to hold shares electronically they should consult their own broker to ensure the transfer goes smoothly and to give the correct guidance to the shareholder who is transferring the shares.

Timing

A paper-to-paper transfer should take between two and four weeks. Any longer than this and the Registrars will need to be contacted. Any transfer involving an electronic account should take less than two weeks, and a transfer between two electronic accounts could be done in a matter of days.

Hints and advice

Be aware that the Stock Transfer form is double-sided and will need to be completed in full. The form must be signed and the certificate enclosed.

PLCs will normally employ a separate company to act as the Registrar of their share list, therefore the transfer will be with the Registrar rather than the PLC itself. The registrar’s name should appear on the share certificate but it is subject to change over time. In order to get the correct registrar either telephone the company, a friendly stockbroking office or search online at one of the many financial websites. The name of the registrar will normally be listed under the basic company information on these sites.

At the time of writing the three main registrars are Lloyds TSB, Computershare and Capita IRG. They each have multiple offices and each office handles different companies. Therefore before speaking about a particular transfer, ensure you are speaking to the right office.

As the transfer is going to an unconnected third party there may be a charge made in respect of stamp duty, although the actual transfer is free. This is something to check with the registrar before going ahead with the transfer.

Private companies (Ltd.)

Private companies are more like Industrial & Provident Societies, in that the Secretary deals with the share register and therefore share transfers. There is no stock market for shares in these companies and they generally cannot advertise their shares for sale.

The transfer of shares is dictated by the Articles of Association of the company. Therefore the starting point of any transfer is either a quick read of the latest set of Articles or a conversation with the Company Secretary.

There may be clauses in the Articles that allow the present directors to look for a buyer for any shares or to have the power to stop any transfer. Therefore in order to know what rights a shareholder has, it is essential to consult the Articles.

If transfers can be completed they will need to be initiated by the shareholder and executed through the company secretary. It may be that the company has a standard form for this, which would make it easier for the Trust to co-ordinate a large amount of transfers at once. If not it may be worthwhile creating a form with all the essential details on it and working with the company secretary to ensure they will accept transfers on this form.

The vast majority of transfers will involve paper certificates, so shareholders should ensure they have these before trying to transfer them. If the certificate is lost then the company may charge a fee for issuing a new one.

Remember that the share register will prove who owns shares and how many they own. This document is available on request, as mentioned in the previous section.

The length of time to complete the transfer is variable. However the company secretary should not create unnecessary delays in carrying this task out. Unless the Articles state a period of time before the process is started, we would suggest that one month is ample time for the whole process to be completed.

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New Share Issues

Most companies issue share capital in order to start their business. Football clubs may issue new shares as a means to raise money. The main concerns for Trusts will be when clubs issue new shares in this way.

The rules and regulations and therefore the consequences are different for Public and Private companies.

Public companies (PLC)

When a company initially offers its shares to the public and seeks a stock market listing it is called an Initial Public Offering (IPO), or flotation. The company will publish a prospectus to describe the business and what it is intending to do with the money it raises.

Subsequently the company may seek to bring in more money (capital) in order to expand the business, buy another business or asset, or to help lower other debts. The company cannot however keep raising money without regard to the rights of the current shareholders, or indeed without their authority.

In order to raise more finance a public company must pass a special resolution. This gives the present shareholders an opportunity to vote on whether they are happy for a further issue of shares to go ahead.

Should the resolution be passed the money will typically be raised through a “rights issue” although sometimes it will be done with a “placing”.

Rights issue

A rights issue is where the company tries to raise more money by offering existing shareholders the chance to buy more shares. They are typically offered at a significant discount to existing shares, therefore the price of shares often falls on the announcement of a rights issue.

Shareholders can opt to buy the new shares in order to retain the same percentage ownership in the company. Alternatively they can trade their rights (the chance to buy the new shares) to someone else via the stock market, buy some shares and sell some rights, or they can do nothing at all.

Without going into the consequences of each strategy, it is enough simply to state that if the shareholder does NOT take up their rights then their percentage ownership of the company will reduce.

The company offers these new shares at a discount as an incentive to current shareholders to buy them. This does not necessarily mean it is a good deal, as the price will stabilise to reflect the new, cheaper shares once they are in circulation.

Placing

Rather than seeking applications from the public for shares, the broker or issuing house looks for clients, such as wealthy individuals and financial institutions, who are willing to buy large numbers of the new shares at a fixed price.

If the company plans to issue new shares as a placing it needs to get the authority of its shareholders to allow it to do so. If they agree to waive their pre-emption rights (the right to buy new shares in proportion to their current shareholding), then the company may go ahead with a placing.

Private companies (Ltd.)

The new issue of shares in a private company is determined by the Articles of Association and may be subject to similar pre-emption rights. In other words existing shareholders may have the right to maintain their shareholding in any new issue of shares.

There may be an opportunity for the shareholders to waive their pre-emption rights by voting on a resolution that would clear the way for shares to be taken up disproportionately to the existing shareholding.

It can often be the case that resolutions on the issue of new shares or the waiving of pre-emption rights can have a time-dated element to them. For instance a resolution could be passed that would allow the company the right to issue more shares at any time within the next five years. At the end of this period the rules revert to those contained in the Articles of Association and the directors would have to seek authority, by way of a resolution, in order to issue more shares.

It should also be noted that as private companies cannot advertise their shares for purchase by the general public it is generally current shareholders who buy up new shares. This can lead to individuals concentrating their control over time, unless information on new issues is disseminated by word of mouth. This would be especially true where pre-emption rights had been waived.

Costs of issuing new shares

While it may seem straightforward for both public and private companies to issue new stock, in reality it can be a costly business. Therefore not every pound raised in such a venture will end up in the bank.

Advisors will have to be paid, there may be an underwriting fee to consider – especially for public companies – and ultimately there are the costs associated with administering the whole process. Therefore companies are unlikely to go through the process unless there is a real need for the capital injection.

Unfortunately, given the different sizes and company types of football clubs it is difficult to quote the rough cost of issuing new shares, although a rights issue aimed at raising £2million may see around 4% of the money raised being taken up in costs. This percentage would most likely reduce for larger issues.

However, rights issues are still a cheap way for public companies to raise additional finance as they avoid many of the costs associated with a brand new issue of shares, such as a prospectus, press advertising, and large underwriting fees. It is also worth remembering that the ability of existing shareholders to trade their rights on to others without buying the new shares also makes this attractive to both the company and many investors.

In reality private companies will rarely use a rights issue for this same reason. As there is no public market for private shares the investor would get little value from a rights issue and the company may be left with a significant amount of unsold shares.

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Cleaning Up Company Share Registers

  • First check the company’s articles to see what they say about unclaimed dividends, failure to respond to notices from the company etc. Ideally they would say something along lines of, if shareholder fails to reply to notices sent to last known address, company does not have to send any further notices (eg of meetings, resolutions etc). Also the general rule is that unclaimed dividends are forfeited after 12 years.
  • If the Articles don’t help on the point – consider amending them specifically to provide a power for the directors to forfeit shares if notices have been sent to last known address without response. Amendment of Articles will require a special resolution at next AGM or a specially convened general meeting (75% of those attending vote in favour). If a private company, may be possible to deal by written resolution.
  • Armed with this new power, the directors procced to repurchase the shares of untraceable shareholders. The relevant conditions for a share buy-back out of profits available for dividends must be satisfied. These conditions include the company having power in its Articles to repurchase the shares (if not put it in when dealing with 2 above), the passing of a written resolution by the members (if the company is private rather than a PLC) and there being sufficient distributable profits in the Company (net realised profits, less net realised losses). The process for share buy-back must be followed.
  • Once repurchased, the company would hold the payment on trust for the shareholder if he materialised at some future date. It would be prudent to advertise the list of lost shareholders in the London Gazette https://www.thegazette.co.uk/ (but care must be taken in verifying identity of those that come forward – ideally they would have to produce and surrender their share certificates to claim the money).