ERSM140070 – Reporting requirements – Form 42

Other events where reports may not be required

Transfers of shares in the normal course of the domestic, family or personal relationships

Flat Management Companies

Members’ clubs (formed as companies)

Share for share exchange

Rights issues

Bonus issues

Scrip Dividends

Dividend Reinvestment Plans (DRIPs)

Shares acquired independently by employees

Transfers of shares in the normal course of domestic, family or personal relationships

A report is not normally required where shares are transferred by an individual in the normal course of domestic, family or personal relationships of the person transferring the shares. It will be for the individual making the transfer to determine whether the transfer has been made for purely personal reasons as they are in possession of all the facts relating to the transfer. Example 1

In family businesses, the ownership of shares usually passes from one generation to another where children work in the business. Where shares pass solely to those children involved in the business, we will accept that the transfer of those shares will have been made in the normal course of the domestic, family or personal relationships of the person making the gift. This is on the basis:

• that the shares or option are provided by an individual, or a company where that company is controlled by an individual or a family,
• that individual or family have procured the award of the securities or grant of the option,
• there was a demonstrable relationship between the individual or family and the employee, and
• there was no element of remuneration in the award or grant (in other words, the normal course of familial relationship will need to be demonstrated, as against the desire of an employer to reward an employee),

then the award or grant does not need to be reported.

Flat Management Companies

If the company is incorporated in a tax year ended 5 April and unrestricted shares are, or will be, allocated to all residents (including flat owners where the owner leases the flat) at nominal value then this transaction does not need to be reported.

Where on the sale of a flat the resident has to sell their share(s) at nominal value either to the company or to a new resident, no report is required. However, a report would be required if the shares were disposed of for more than nominal value.

If the shares acquired by the residents are restricted shares, then a report must be made in section 2 on page 7 of Form 42. We do not consider that a requirement to sell the share(s) back to the company or another resident on disposal of the flat makes the share(s) a restricted share and in that case a report is not required.

Members’ clubs (formed as companies)

If a Members’ club is incorporated in a tax year ended 5 April and unrestricted shares are allocated to members at nominal value during that tax year, then a report is not required.

Shares transferred between members at nominal value during the tax year also do not need to be reported. However, if the shares are restricted shares, then a report must be made in section 2 on page 7 of Form 42.

Share for share exchange

If a person has received shares by reason of employment the legislation will treat any additional shares as also received by reason of employment. However, where:

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including director and employee shareholders, and
• the unrestricted shares/securities are acquired independently of the company, for example through a broker at full market

a report of those shares acquired by directors and employees is not required.

Rights issues

A company can raise more capital by asking current shareholders to purchase new shares, usually at a discount – a ‘rights issue’. A rights issue is a right to acquire securities and therefore is an employment-related securities option in relation to employees acquiring those rights. However, if the following conditions apply:

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders,

a report of such shares/securities acquired by directors and employees is not required.

Bonus issues

Bonus shares acquired by directors and employees from employing companies will be treated as received by reason of employment. However, if the following conditions apply;

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders,

a report of such shares/securities acquired by directors and employees is not required.

Scrip Dividends

Where we have been given details of the arrangements relating to the Scrip Dividend by the employer and

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders

then, provided we are satisfied with the arrangements and that they meet those conditions, there will be no need to report details of the unrestricted shares/securities acquired by directors and employees through the Scrip Dividends.

If, following a compliance review, we find that this is not the case then we will require the company to report the full details.

Dividend Reinvestment Plans (DRIPs)

In the case of DRIPs where we have been given details of the arrangements by the employer and where:

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire shares/securities is made available to all shareholders, including employee shareholders, and
• the shares/securities are acquired independently of the company, for example through a broker at full market value on the open-market,

then, provided we are satisfied that the arrangements meet those conditions, there will be no need to report the details of the shares/securities acquired by directors and employees through the DRIP.

If, following a compliance review, we find that this is not the case then we will require the company to report the full details.

Shares acquired independently by directors and employees

Where directors and employees acquire shares in their employer and have purchased those shares on the open market, for example through an independent broker, then if:

• the employer is a company or part of a group listed on a recognised stock exchange, and
• the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders, and
• the unrestricted shares/securities are acquired independently of the company, for example through a broker at full market

a report of those shares acquired by directors and employees is not required.