A limited company can split its shares into more shares of a smaller nominal value (subdivision) or combine them into fewer shares of a larger nominal value (consolidation) under section 618 of the Companies Act 2006, provided the members pass a resolution authorising it and the articles do not prevent it. The company must then file form SH02 with a statement of capital at Companies House within one month. Total nominal capital and each shareholder’s proportion stay the same, and for capital gains purposes the change is usually a reorganisation with no disposal.

What is the difference between subdividing and consolidating?

Section 618(1) gives a limited company with a share capital two related powers:

  • Subdivision: dividing shares into shares of a smaller nominal amount. Companies House’s SH02 guidance gives the example of 100 shares of £1 each becoming 1,000 shares of 10p each, with the total still £100.
  • Consolidation: consolidating and dividing share capital into shares of a larger nominal amount. The same guidance gives 1,000 shares of £1 becoming 100 shares of £10, with the total still £1,000.

Neither power changes the total nominal value of the class, brings new money in or returns any. If the company wants to increase capital it must allot shares; to return capital it needs a reduction of share capital, a buyback or a redemption. Section 617 lists these as the only permitted ways to alter share capital.

Why would a company do it?

Subdivision is common in owner managed companies when a single £1 share is too coarse a unit: for example, to give a spouse or employee a small percentage, to set up an option scheme, or to create a pool of shares that can later be redesignated into a separate class. Consolidation is used to tidy up a share capital made up of very small units, often before a sale, a share for share exchange or a listing. In both cases the commercial purpose should be recorded in the board minutes.

What resolution is needed?

Section 618(3) says the company may exercise the power “only if its members have passed a resolution authorising it to do so”. The section does not specify the type, so under section 281(3) an ordinary resolution is enough unless the articles require a higher majority or unanimity. A private company can pass it as a written resolution. Points to check:

  • Articles: section 618(5) allows the articles to exclude or restrict the power, so read them first. Older articles adopted under earlier Companies Acts sometimes impose a special resolution.
  • Flexibility: under section 618(4) one resolution can authorise more than one power, use on more than one occasion, or use at a specified time or in specified circumstances.
  • Paid and unpaid amounts: section 618(2) requires each new share to carry the same proportion of paid and unpaid amount as the share it came from. See partly paid shares and calls.
  • Class rights: if the change affects only one class, or alters the relative rights of classes, the rights of a class may be varied only under section 630 (the articles’ variation procedure or the consent of three quarters of the class). A variation must be notified to the registrar within one month under section 637.

An ordinary resolution under section 618 is not one of the resolutions that section 29 requires to be sent to Companies House. If the resolution is passed as a special resolution, or the articles are amended at the same time, section 30 requires a copy within 15 days. See which resolutions must be filed.

What must be filed at Companies House?

Section 619 requires the company, within one month after exercising the power, to give notice to the registrar specifying the shares affected, with a statement of capital showing, immediately after the change:

  • the total number of shares and their aggregate nominal value;
  • the aggregate amount unpaid, whether on nominal value or premium; and
  • for each class, the prescribed particulars of rights, the number of shares and their aggregate nominal value.

The notice is form SH02, which covers consolidation, subdivision, redemption and reconversion of stock. It asks for the date of the resolution, the previous and new structure for each class, and the full statement of capital. Companies House’s checklist says the resolution date cannot be in the future or before 1 October 2009 (older resolutions use form 122), and that the aggregate nominal value must equal number of shares multiplied by nominal value, not the amount paid up. Failure to notify is an offence by the company and every officer in default, with a fine up to level 3 on the standard scale and a daily default fine (section 619(4) and (5)).

If a new name or designation is given to any class at the same time, section 636 requires a separate notice within one month. Internally, update the register of members, cancel the old share certificates and issue new ones.

What happens to fractions on a consolidation?

Consolidations rarely divide evenly. A holder of 1,050 shares of 1p consolidated into £1 shares would be entitled to 10.5 shares. The resolution should say how fractions are dealt with, commonly by aggregating them and selling the resulting shares for the benefit of those entitled, or by the company buying out fractions in another lawful way. Check the articles: some contain a general fractions clause, but the private company model articles only deal with fractions arising on a capitalisation of profits (article 36), not on a consolidation. In a small company it is usually simpler to arrange a few share transfers first so every holding divides exactly.

Is there any tax on subdividing or consolidating shares?

For capital gains tax, section 126 of TCGA 1992 treats a reorganisation of share capital as including an allotment to holders in proportion to their holdings, and section 127 says a reorganisation is not treated as a disposal of the original shares or an acquisition of the new holding. The new shares take over the original shares’ cost and acquisition date. HMRC’s Capital Gains Manual at CG51700 notes that a key feature is that the change must apply to all the shareholders of the class concerned.

If a shareholder receives cash, for example from the sale of fractional entitlements, that cash is a capital distribution (CG51876). Under section 122(2) a small distribution is not treated as a disposal but reduces the allowable cost instead. CG57835 says HMRC accepts “small” as 5% or less of the value of the holding, or £3,000 or less.

A subdivision that applies only to some shareholders, or that is combined with changing rights between classes, needs more thought, especially in a close company where value shifting and employment related securities rules may also apply.

How does this work in practice?

Illustration only. Oak Ltd has 100 ordinary shares of £1, held 50:50 by two founders, and wants to give a key employee 2%. Two shares would be 2%, but the founders also want flexibility for future grants. The members pass an ordinary written resolution subdividing each £1 share into 100 shares of 1p. Each founder now holds 5,000 shares of 1p; total nominal capital remains £100. Within one month the company files SH02 showing 100 £1 shares before and 10,000 1p shares after, with a statement of capital. Each founder’s 5,000 shares have the same base cost and acquisition date as their original 50. The founders then transfer 100 shares each to the employee, which is a separate disposal and an employment related acquisition.

What mistakes come up most often?

  • Filing SH02 late, or not at all, because nobody realised a subdivision is a notifiable event.
  • Showing the amount paid up instead of the aggregate nominal value in the statement of capital.
  • Using a subdivision to create a new class without also dealing with redesignation, class rights and the articles (see different classes of shares).
  • Forgetting to deal with fractions on a consolidation.
  • Not updating option agreements, EMI valuations and shareholder agreements that refer to share numbers.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.