ETASSUM23160 - Schedule 2 share incentive plan (SIP): Shares that may be awarded: Ordinary share capital
Eligible shares must form part of the ordinary share capital of the company whose shares are used as eligible shares (see ETASSUM23130).
âOrdinary Share Capitalâ is defined in Section 989 ITA 2007. It means all of the companyâs share capital other than that capital which has a right to a fixed rate dividend but having no other rights to share in the profits of the company.
It does not matter whether or not the class of shares in question is called âordinaryâ. For example, shares described as âpreference sharesâ can be ordinary share capital if the rights they confer satisfy the definition in Section 989 ITA 2007.(see CTM00512).
âThe following may be accepted as ordinary share capital:
- shares with a right to âtieredâ dividends e.g. 8% for year 1, 9% for year 2, 10% thereafter. This is acceptable on the basis that âtieredâ rates do not amount to a fixed rate. Support for this interpretation can be derived from the use of the singular âa fixed rateâ in Section 989 ITA 2007 and from the meaning assigned there to âpreference dividendâ which contrasts fixed rates with variable rates,
- shares which have a right to the greater of a specified sum or the dividend paid in respect of another class of shares,
- shares with no dividend rights (we do not contend that they carry the right to a fixed dividend of 0%).