VCM12010 - The investment process: nature of the shares

ICTA/S289 (7); ITA/S173(2); ICTA/S842AA (14); ITA/S273; ITA/S285

TCGA92/SCH5B/PARA19 (1); FA00/SCH15/PARA35

For the EIS, relief is available only where the investor subscribes for shares which meet certain requirements. The shares must be ordinary shares which, throughout the three year period carry:

• no present or future preferential right to dividends,
• no present or future preferential right to the company's assets on its winding up, and
• no present or future right to be redeemed.

For the meaning of 'preferential right' see VCM12030.

'Ordinary shares' means shares forming part of a company's 'ordinary share capital', which is itself defined in ICTA/S832 (1) and ITA/S989 as all issued share capital, by whatever name called, other than capital the holders of which have a right to a dividend at a fixed rate but no other right to share in profits.

The rights carried by shares are usually as set out in the company's Articles of Association or as determined by a resolution of the company.

For the VCT scheme, the requirement for the investor in the VCT is in terms of eligible shares and the period is 5 years from the date of issue. In relation to the investments made by a VCT only a proportion of the investment in a company has to be in eligible shares (see VCM62030) and the definition of 'eligible shares' does not refer to any particular period of time.

For the CVS, the same conditions apply as for EIS.