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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Reorganisations of share capital: open offers and vendor placings

A characteristic feature of a rights issue is the provisional letter of allotment which entitles existing shareholders to subscribe for further shares in the company under the terms of the issue. However, a company can raise funds in other ways which are similar to a rights issue to the extent that existing shareholders are offered the opportunity to subscribe for the new shares. However, they are not conventional rights issues because there is no provisional letter of allotment which the shareholder can sell ‘nil paid’, ie before they have subscribed for new shares.

Arrangements alternative to a rights issue fall into two categories which are often known as open offers (or entitlement issues) and vendor placings. However, there is no commonly accepted vocabulary and vendor placings are sometimes described as open offers or entitlement issues and vice-versa. Therefore in any individual case it will be necessary to look at the underlying transactions not simply at the label used to describe them. In practice this should not be a problem as the arrangements are largely confined to public companies and you can follow the treatment described in Interactive Data publications (formerly Extel) unless the taxpayer objects.