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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 Share Incentive Plan (SIP): Rights issues: Trustees’ obligations

The trustee must act in accordance with a participant’s directions, if any, in relation to his or her Schedule 2 SIP shares (paragraph 72) and in the absence of a direction the trust deed will normally require the trustees to take no action. The effect of this will depend on the precise terms of the particular rights issue. If, for example, the transaction is a rights offer where unexercised rights lapse, a participant who does not direct the trustees will receive nothing.  But in the case of a rights issue proper, the terms usually provide for unexercised rights to be sold and for the net proceeds of sale to be passed to the shareholder. In the case of plan shares, the trustees will receive this payment as registered owner of the shares and they must account for it to the beneficial owner (the participant) (paragraph 74).

The free share agreement or partnership share agreement may include a general direction to the trustees and in relation to rights issues, the HMRC specimen partnership and free share agreements located at ETASSUM28250 and ETASSUM28240 direct the trustees to ‘tail swallow’ (sell sufficient of the rights to fund the take up of the remainder – see ETASSUM25160). In the absence of such a standing direction, the trustees will normally consult participants about the exercise of their rights and they should do so on the same basis and offering the same choices as are available to shareholders in the same company.