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Issuing New Shares in a Company

December 7, 2017

 

 

The first thing to consider when looking to offer shares to new shareholders (eg new directors or investors), is whether you want to transfer existing shares or whether you would be better issuing new shares.In most instances you will be better issuing new shares and that is what we will look at in this article.

 

Authorised share capital

 

The first thing to consider is when your company was formed.  

 

If the company was formed under the Companies Act 1985 then you may well find that the company's articles limit the amount of share capital that can be issued.  If this is the case and there is not enough authorised share capital available, then the company will have to take steps to increase the share capital. This will normally be either through a special resolution to amend the articles or to pass an ordinary resolution to increase the authorised share capital.

 

For this article we are going to assume this relates to a company formed under the Companies Act 2006 which no longer has the concept of authorised share capital - meaning the company can increase its share capital without restriction.

 

Directors powers

 

The company's articles may allow directors to issue (or allot) more shares without approval from the members or they may require directors to obtain the approval of members before issuing share capital (usually by passing an ordinary resolution).

 

 

 

Pre-emption rights of existing shareholders

 

Anyone issuing share capital should also check both the articles and any shareholders agreement to determine whether the existing shareholders have pre-emptive rights to purchase any new shares issued.

 

If there are any such rights, these may need to be amended via a special resolution.

If these rights exist and are not waived, then the existing shareholders will be able to purchase any new shares in the same proportion as their existing shareholding.

 

Issuing New Shares: Allotment of Shares

 

The directors should resolve to allot more shares - the minutes from this meetings should state the number and class of shares to be issued, who the shares are allotted to and the price paid (together with this is cash or other assets). 

 

Issuing New Shares: Administrative Requirements

 

Once the directors have resolved to issue more shares the company should do the following:

  • Submit form SH01 to Companies House within one month of the share issue (this can be done online)

  • Prepare a share certificate for each new shareholding

  • Send a letter to each of the shareholders letting them know about their new shareholdings and let them have a copy of their share certificate

 

Please contact us for further guidance.

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