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#10134 - Allotment Of Shares 1 - Business Law and Practice

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OUTCOME 1: Procedural Steps to Allot Ordinary and Preference Shares

STEP 1: Are there Constitutional Restrictions? (i.e. Art of the Company)p.191

(statutory provisions are in place to protect existing s’holders from dilution of their rights by issues of shares to 3rd parties)

Incorporated before 01/10/2009 (“old”)

  • Firstly, check Authorised Share Capital (ASC) clause in the memorandum of association:

    • If too low, remove the ASCclause by OR

  • Then, check the Articles for any upper restriction on the size of the allotment (there is none in TA):

    • If limit is too low, remove the article by SR

Incorporated on or after 01/10/2009 (“new”)

  • There is no authorised share capital under the CA 2006 (issue as many shares as Co. wants unless Art’s restrict)

  • New companies need to make a statement of capital on incorporation (Form IN01)

  • But check the Articles for any upper limit (there is none in the MA)

  • If there is one, remove by SR(s21. CA)
STEP 2: Do the Directors have Authority to Allot?

  • s.549 CA 2006: directors need authority to allot shares

  • Check if express authority exists in the Articles of Association by a special article

  • YES, it exists: check number of shares and duration of authority (activate D’s Powers for an Old Co. check if status of Automatic Authority in a New Co. ). Now go to pre-emption rights.

  • NO, it does not exist or number of shares inadequate/duration expired and therefore:

Private company with 1 class of share p.192
(before and after allotment)		 All other companiesp.192
“Old” “New”

PassOR to activate D’s powers under s.549 and s.550.Ds will now have permanent authority to allot subject to any restrictions in the Articles.

If restrictions exist in Articles, then either:

  1. Remove by SRs.21or

  2. Unders.551: pass an OR to grant a new authority to allot. If s.551 was used see limits

s.550: automatic authority is given unless Articles prohibit.

So, check Articles for restriction on D’s authority, and if restriction exists either:

  1. Remove by SR; or

  2. s.551: pass an OR to grant a new authority to allot If s.551 was used see limits

They may have authority given by either:

  1. Specifically i.e. by the Articles; or

  2. Generally i.e. pass an OR/WRin GMto grant a new authority to allot s.551. This must state:

  1. maximum number of shares that can be allotted (s.551(3)(a)) and

  2. the expiry dateof this authority (s.551(3)(b)), which must not be more than 5 years from the date of the resolution.

But under (s.551(4)), authorisation can be renewed(s.551(5)), varied or revoked by OR.
STEP 3: Are there any Statutory Pre-Emption Rights? (SPER) s.560-s.577 CA 2006p.193

  • Pre-emption rights arise under: 1) statute, 2) The Co.’s Constitution, and 3) the (Fin ServAut) FSA’s Listing Rules

“SPER”: where an allotment of new shares it must be offered to existing shareholders first in proportion to their existing holdings (offer remains open for 14 days) If the allotment is to the existing S’holders of the Co in the proportion of their existing holdings, the statutory rights apply and therefore no need to disapply but follow 14 day rule. If allotment is to a 3rd party then first offer to S’holder and if they don’t want them then the shares are offered to the 3rd parties on same terms(price) as to the S’holders(s.561) and follow a), b) or c):

  1. If allotting Preference Shares(PSs) i.e. not providing voting rights = no need to disapply pre-emption unless, the PSs can be converted into Ordinary Shares (s.560 and s.561) Or you are allotting shares in different proportions

  2. If allotting Ordinary Shares i.e. providing voting rights = need to disapply pre-emption (s.560 and s.561)

    1. Expressly in the Articles under the power of s.567; or

    2. By SRunders.569to disapply inPrivateCo.s with 1 class of share if D’s were authorised under s.550

    3. By SRunders.570to disapply in Public Companies if D’s were authorised under s.551p.194

  3. Where shares are issued wholly or partly for non-cash consideration (say, a piece of land), s 561 of the CA 2006 has no application (s 565). In such a case, there would be no need to disapply statutory pre-emption rights, as there would not be any pre-emption rights in the first place. (But check Articles these may include pre-emption when consideration is non-cash.)
PROCEDUREp.194
Board Meeting 1
Calling

  • TA88: any D can call a BM/authorise a secretary to call one

  • Apply to the facts: who has called it?
Notice

  • Re Homer: there must be reasonable notice

  • Apply to the facts: has there been reasonable notice?
Quorum

  • TA89: there must be at least 2 present

  • Apply to the facts: are there two present? Who has to turn up to satisfy this?
Declarations of Interest

  • s.177: a director must declare their direct/indirect interest in a proposed transaction to the other directors;

  • But, s.177(6)(b): not if the other directors are aware of it;

  • However, it’s best practice to do so anyway.

  • Apply to the facts: what is their interest? Have they declared it?
Voting

  • Do any special Articles disapplyTA94, thereby allowing a director with an interest to vote at the BM?

  • TA94(c): a D can vote at the BM regardless of interest if it’s an allotment

  • Voting is done by simple majority as a show of hands (TA88)

  • Apply to the facts: which of the Ds must vote for the resolutions to pass?
Resolutions

  • After due and careful consideration, the Board resolves to:

    • Call a GM

    • Approve the terms of the allotment of shares by producing and signing a letter of subscription

  • Apply to the facts: will these resolutions be passed? Who must vote to ensure they are passed?
General Meeting: Notice
Length

  • TA38: there must be 21 ‘clear’ days’ notice for the passing of a SR or 14 ‘clear’ days’ notice for the passing of an OR

  • Apply to the facts: has this happened? What is the date by which notice must be given?
Short Notice

  • TA38: for an AGM, all members must agree; for a GM, there must be:

    • A majority in the number of the members having the right to attend

    • Together holding not less than 95% of nominal value of shares (TA38(b))

  • Apply to the facts: can we get a majority of members who own the requisite value of shares? If not, why not?
Can we do WR?
Contents

  • When/Time/Date/Place (s.311(1))

  • Members’ rights to appoint a Proxy (s.325(1)(a) applying s.324(1))

  • s.283: must include the full text of the proposed SR

  • s.311: must include the general nature of business (i.e. details of the transaction)

  • Apply to the facts
To whom?

  • Members, directors and the company’s auditors (TA38); or

  • Members and directors (s.310) and company’s auditors (s.502(2)(b))
Board Meeting 1: Paperwork (only if not adjourning BM1)

  1. The Board minutes are to be kept at the company’s registered office for at least ten years from the date of the meeting (TA100; s.248)

  2. Is there any paperwork to be dealt with for a D’s resignation?

  3. Form TM01: termination of a D within 14 days of termination (s.167)

  4. Form TM02: termination of a company secretary within 14 days of termination (s.276)
General Meeting
Notice [dealt with above]
Quorum

  • TA40: there must be at least 2 members present

  • Apply to the facts: are there two present? Who has to turn up to satisfy this?
Declarations of Interest [members need not declare their interests - Pender v Lushington]
Resolutions

  • The members resolve to:

    • Either: (both require above 50% of votes under s.282)

      1. Remove ASC clause by OR if an old company

      2. Remove restriction of allotment in Articles by SR if a new company

    • Either: (both require above 50% of votes under s.282)

      1. Activate D’s authority to allot under s.550 by OR if a private company with one class of shares for “old” [or amend Articles by SR to remove restriction for “new”]

      2. Grant Ds authority to allot under s.551 by OR if any other company or a plc. It must state maximum number of shares that can be allotted (s.551(3)(a)) and the expiry date of this authority (s.551(3)(b)) which cannot be longer than 5 years.

    • Disapply the statutory pre-emption rights by SR for administrative ease (use s.569 if used s.550; use s.570 if used s.551). This requires above 75% of votes under s.283)

      • Apply to the facts: will the resolutions be passed? Who must vote? What combination of those actually at the GM will requisitely pass the resolutions?
Board Meeting 2
Calling, Notice, Quorum, Declarations of Interest, Voting

  • Same as above

  • If there is a new D, then state that he/she will form part of the Quorum.
Resolutions

  • After due and careful consideration, the Board resolves to:

    1. Allot X amount of shares each to A, B and C

    2. Authorise 2 Ds to sign the share certificate (ss.43 and 44)

    3. Appoint a new secretary [only if the company is re-registering as a plc]
Paperwork

  • Minutes of the GM must be kept at the registered office for ten years from the date of the resolution, meeting or decision (s.355(1))

  • Minutes of the BM2 must be kept at the registered office for ten years from the date of the meeting (TA100; s.248)

  • Form AP03 (company secretary) to the Registrar of Companies w/in 14 days (s.276)

  • Update the register of secretaries

  • Update the register of members as per s.113 within 2 months of allotment (s.554)

  • Issue share certificates to the new members within 2 months of allotment (s.769)

  • File the OR for the ASC if old (TPO) [or SR for Articles if new (s.29/30)] at CH

  • File the OR for s.550 (TPO) or for s.551 (s.551)

  • File the SR for the removal of the pre-emption rights at CH (s.29/30)

  • Form SH01 and the statement of capital at CH within 1...
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