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HMRC internal manual

International Manual

Distribution exemption: Exemption for all other companies: meaning of "ordinary shares"

What do we mean by “ordinary share”?

CTA09/S931U gives the meaning of “ordinary share”. A share is an ordinary share if it carries no preferential rights compared to any other share issued by the same company. Shareholders’ rights are preferential if they have any form of prior entitlement, either to distributed profits or to assets on a winding up. For example, an entitlement to a distribution out of a reserved pool of assets or profits represents a preferential right if the shareholder’s entitlement exceeds that of any other shareholder.

Therefore, in order to qualify, the shareholder’s rights should not include a right to payment in priority to any other shareholder and the amount payable to the shareholder should not exceed that payable to other non-preferential shareholders as a proportion of the subscribed share capital.

Further guidance on the meaning of ordinary share capital can be found in Revenue and Customs Brief 87/09.

See INTM654040 below regarding an anti-avoidance rule that may apply where a shareholder obtains rights that are equivalent to those of a preferential shareholder otherwise than through the terms of the share issue.