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A subdivision resolution is a document that needs to be signed by all shareholders as part of a share split, why is typically done to increase the number of shares available to give to investors before a funding round.
Create, sign and download a Subdivision Resolution and SH02 on SeedLegals free trial.
Why someone incorporates their company on Companies House, they usually create 1 share per founder, or perhaps 100 shares split between founders.
That’s fine… until the company wants to raise funding. Then they’ll need to do a share split, here’s why:
You can see immediately that there are two problems:
The solution is a Share Split (or, as the Americans would call it, a Stock Split), where you turn those 100 shares into, for example, 100,000 shares. At the same time, you reduce the Nominal Value of each share by the same ratio, so that the total value of your shares is unchanged.
The good news is that SeedLegals automates the whole process. Assuming you’ve built your cap table on SeedLegals already, it’ll take just a few minutes to do everything – here’s how:
We recommend having at least 100,000 shares before you do a funding round, so if you have 100 shares now we recommend a 1000:1 share split. Or, if you want to future-proof yourself to not have to do another share split at a future funding you might want to create, say, 1M shares.
Be sure to pick a multiplier that creates a share nominal value that can be fully represented in 8 characters after the decimal point (the maximum allowed by Companies House). For example, if your nominal value is £1, doing a 300:1 share split is a bad idea because it will create a new nominal value of £0.003333333333…. which means the total nominal value of all shares after the share split can never match the amount before. So ideally go with 10, 100, 1000, etc. as the share split.