Finance Act 2000

Part VIII U.K. Types of share that may be used

Introduction U.K.

59 The requirements of the following paragraphs must be met with respect to any shares that may be awarded under the plan (“eligible shares”)—

paragraph 60 (must be ordinary share capital);

paragraph 61 (requirement as to listing etc.);

paragraph 62 (shares must be fully paid up and not redeemable);

paragraph 63 (only certain kinds of restriction allowed);

paragraph 67 (prohibited companies).

Must be ordinary share capital U.K.

60 Eligible shares must form part of the ordinary share capital of—

(a) the company; or

(b) a company which has control of the company; or

(c) a company which either is, or has control of, a company which is a member of a consortium owning either the company or a company having control of the company.

Requirement as to listing etc. U.K.

61 Eligible shares must be—

(a) shares of a class listed on a recognised stock exchange; or

(b) shares in a company which is not under the control of another company; or

(c) shares in a company which is under the control of a company (other than a company which is, or would if resident in the United Kingdom be, a close company) whose shares are listed on a recognised stock exchange.

Shares must be fully paid up and not redeemable U.K.

62 (1) Eligible shares must be—

(a) fully paid up, and

(b) not redeemable.

(2) Shares are not regarded as fully paid up for the purposes of sub-paragraph (1)(a) if there is any undertaking to pay cash to the company at a future date.

(3) For the purposes of sub-paragraph (1)(b) “redeemable” shares include shares that may become redeemable at a future date.

(4) Sub-paragraph (1)(b) does not apply in relation to shares in a co-operative.

(5) In sub-paragraph (4) “co-operative” means a registered industrial and provident society which is a co-operative society.

For this purpose—

• “registered industrial and provident society” means a society registered or deemed to be registered under the M1 Industrial and Provident Societies Act 1965 or the M2 Industrial and Provident Societies Act (Northern Ireland) 1969; and

• “co-operative society” has the same meaning as in section 1 of the 1965 Act or, as the case may be, the 1969 Act.

Marginal Citations

M1 1965 c. 22.

M2 1969 c. 24 (N.I.).

Only certain kinds of restriction allowed U.K.

63 (1) Eligible shares must not be subject to any restrictions other than—

(a) those involved in there being a holding period (see paragraphs 31, 52 and 57); or

(b) those affecting all ordinary shares in the company; or

(c) those permitted by—

paragraph 64 (voting rights),

paragraph 65 (provision for forfeiture), or

paragraph 66 (pre-emption conditions).

(2) For this purpose there is a restriction if there is any contract, agreement, arrangement or condition—

(a) by which a person’s freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted, or

(b) by which such a disposal or exercise may result in any disadvantage to him or to a person connected with him,

subject to sub-paragraphs (3) and (4).

(3) Any discretion of the directors under the articles of association of the company to refuse to accept the transfer of shares shall be disregarded for the purposes of this paragraph if the directors—

(a) have undertaken to the Inland Revenue not to exercise it in such a way as to discriminate against participants, and

(b) have notified all qualifying employees of the existence of the undertaking.

(4) There shall also be disregarded for the purposes of this paragraph so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Code as (for the time being) set out in the listing rules issued by the competent authority for listing in the United Kingdom under section 74(4) of the M3 Financial Services and Markets Act 2000.

Marginal Citations

M3 2000 c. 8.

Permitted restrictions: voting rights U.K.

64 Eligible shares may be shares carrying no voting rights or limited voting rights.

Permitted restrictions: provision for forfeiture U.K.

65 (1) Free or matching shares may be subject to provision for forfeiture in the following circumstances.

(2) Provision may be made for forfeiture—

(a) on the participant ceasing to be in relevant employment at any time in the forfeiture period,

(b) on the participant withdrawing the shares from the plan in that period, or

(c) in the case of matching shares, on the participant withdrawing the partnership shares in respect of which those shares were awarded from the plan within that period,

otherwise than by reason of an event within paragraph 87(2) (circumstances in which there is no charge to tax on shares ceasing to be subject to plan).

(3) In sub-paragraph (2) “the forfeiture period” means the forfeiture period specified in the plan being a period of not more than three years beginning with the date on which the shares were awarded to the participant.

(4) Forfeiture may not be linked to the performance of any person or persons.

(5) The same provision for forfeiture must apply in relation to all free or matching shares included in the same award under the plan.

(6) In this Schedule “provision for forfeiture” means any provision to the effect that a participant shall cease to be beneficially entitled to the shares on the occurrence of certain events, and references to forfeiture shall be construed accordingly.

Permitted restrictions: pre-emption conditions U.K.

66 (1) If the requirements of this paragraph are met, eligible shares may be subject to provision requiring shares—

(a) that were awarded to an employee under the plan, and

(b) that are held by an employee or a permitted transferee,

to be offered for sale on the employee ceasing to be in relevant employment.

(2) For the purposes of sub-paragraph (1)(b) a “permitted transferee” means a person to whom, under the articles of association of the company, the employee is permitted to transfer the shares.

(3) The requirements of this paragraph are that under the articles of association of the company—

(a) the same provision applies to all employees of the company or, in the case of a parent company, to all employees of that company or any company of which that company has control;

(b) the shares are required to be offered for sale at a specified consideration; and

(c) anyone disposing of shares of the same class (whether or not as an employee) is required to offer the shares for sale on no better terms.

Prohibited companies U.K.

67 (1) Eligible shares must not be shares—

(a) in an employer company, or

(b) in a company that—

(i) has control of an employer company, and

(ii) is under the control of a person or persons within sub-paragraph (2)(b)(i) in relation to an employer company.

(2) For the purposes of this paragraph a company is “an employer company” if—

(a) the business carried on by it consists substantially in the provision of the services of persons employed by it, and

(b) the majority of those services are provided to—

(i) a person who has, or two or more persons who together have, control of the company, or

(ii) a company associated with the company.

(3) For the purposes of sub-paragraph (2)(b)(ii) a company shall be treated as associated with another company if both companies are under the control of the same person or persons.

(4) For the purposes of sub-paragraphs (1) to (3)—

(a) references to a person include a partnership, and

(b) where a partner, alone or together with others, has control of a company, the partnership shall be treated as having like control of that company.

(5) For the purposes of this paragraph the question whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.