INTM653050 - Distribution exemption: Exemption for all other companies: meaning of "ordinary shares"
What do we mean by 鈥渙rdinary share鈥�?
CTA09/S931U gives the meaning of 鈥渙rdinary share鈥�. A share is an ordinary share if it carries no preferential rights compared to any other share issued by the same company. Shareholders鈥� 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鈥檚 entitlement exceeds that of any other shareholder.
Therefore, in order to qualify, the shareholder鈥檚 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 at CTM00511 onwards.
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.