CG50285 - Definitions: issue of shares: subscription and purchase
The distinction between a subscription for shares and a purchase of shares can be important for tax purposes. A subscription involves the issue of new shares by the company. The proceeds of the subscription go to the company and form part of its capital. A purchase involves the acquisition of shares that have already been issued. The proceeds of the sale belong to the seller of the shares.
For example, a growing company may raise capital through an Initial Private Offering (IPO) but the share offered to the public may be a mixture of newly issued shares and those previously issued to the company's founders or possibly shares issued to employees shortly before the IPO under employee share scheme.
Under UK company law shares are regarded as being issued on the date that the shareholder is entered in the company's register of members but see CG50293 for the capital gains rule that applies where shares are issued following a "letter of allotment". Note also that the Court can recitify a company's register of members under section 125 Companies Act 2006. Where the Court amends the register with retrospective effect then that will determine the date the shares are treated as being issued for capital gains purposes.
The distinction between purchase of existing shares and subscription for an issue of new shares can be important for capital gains purposes. For example:
- the share exchange and company reconstruction provisions in sections 135 and 136 TCGA apply only where new shares or debentures are issued to shareholders in the original company, see CG52500C
- incorporation relief requires new shares to be issued to the transferor, section 162 TCGA, see CG65700C
- the separate share pooling rules for `clogged' shares only apply if the shares are issued to the employee, see CG50750
- relief for losses on the disposal of shares in an unquoted trading company is available only if the taxpayer has subscribed for the shares, see VCM7000.