»Ê¹ÚÌåÓýapp

CTA10/S170

This page describes shares or securities with limited rights - rights limited by reference to a specified amount or amounts. »Ê¹ÚÌåÓýapp guidance in CTM81065 tells you how such shares and securities are dealt with in determining:

• the percentage of the profits available for distribution to equity holders to which the parent company is beneficially entitled, and

• the percentage of the amount of the assets available for distribution to the equity holders on a winding-up to which the parent company is beneficially entitled.Shares or securities with limited rights are any shares or securities carrying rights in respect of:

• dividend or interest, or

• assets on a winding-up,which are wholly or partly limited by reference to a specified amount or amounts. »Ê¹ÚÌåÓýapp limitation may be in the form of the capital to which the calculation of a distribution refers. Or the limitation may operate by reference to an amount of profits, or assets, or otherwise.

  Examples of limitations by reference to a specified amount or amounts are:

  Shares

  Dividend rights

  Company C’s share capital is divided into 100 A ordinary shares and 500 B ordinary shares. »Ê¹ÚÌåÓýapp A ordinaries participate fully in Company C’s profits. But the B ordinaries participate only in profits up to a maximum of £1,000. »Ê¹ÚÌåÓýapp B Ordinary shares are shares with limited rights.

  Winding-up rights

  Company R’s share capital is divided into 500 ordinary shares and 500 participating preference shares. On a winding-up, there is no restriction to the entitlement of the holders of the ordinary shares. But the participating preference shareholders are entitled only to repayment at par. »Ê¹ÚÌåÓýapp participating preference shares are shares with limited rights.

  Securities

  Interest rights

  Company B makes a loan to Company C of £10,000 at 8%. »Ê¹ÚÌåÓýapp terms of the loan allow it to be converted into ordinary shares in Company C at par. This is not a normal commercial loan (CTM81010 ‘normal commercial loanâ€�), so Company B is an equity holder (CTM81010 ‘equity holderâ€�) in respect of it. But the share of the profits to which Company B is entitled is limited to 8% of the amount of the loan. »Ê¹ÚÌåÓýapp loan is a security with limited rights.

  Winding-up rights

  Company J makes a loan of £100,000 to Company H at 20%. This rate exceeds a reasonable commercial return. This is not a normal commercial loan (CTM81010 ‘normal commercial loanâ€�), so Company J is an equity holder (CTM81010 ‘equity holderâ€�) in respect of it. But the share of the Company H’s assets to which Company J is entitled on a winding-up is limited to £100,000, the amount of the loan. »Ê¹ÚÌåÓýapp loan is a security with limited rights.

  You will notice that it would be very unusual for a loan not to be a security with limited rights.