#3197 - Issuing And Allotting Shares - Business Law and Practice

1. Director’s Power / authority to allot shares [S.549 – 551]

• Is the issue of shares a breach of any of the director’s duties?

• S.549: Director’s require authority to allot shares

• S.550: exception to the rule Private Companies with one class of shares only – directors do not need authority to allot shares except to the extent that they are prohibited from doing so in the articles. [

• S.551: two or more classes ordinary resolution is required and it must comply with the requirements set out. (S.551(3) = authorisation must specify

  1. Maximum amount of shares that may be allotted; and

  2. Date on which the authorisation will expire. [not more than 5 years from date of authorisation (or incorporation if no authorisation yet given)]

• Consequence of Director’s breach = commit offence under S.549(4) but allotment of shares remain valid (S.549(6))

2. What is the effect of the issue of shares will it result in a variation of class rights?

• S.630 procedure required?

3. Updating the constitutional documents.

• Name and describe the different classes of shares [no need to name the owners]

4. Authorised Share capital

• Def: maximum amount of shares which may be allotted by a company

• CA 2006: does not contain concept of ASC.

• Companies incorporated before October 2009: S.28 CA provision of memorandum is treated as provision (restriction) within the articles.

• What should company do if it wants to issue more shares:

1. Stay within ASC limit

2. S.42 ordinary resolution to increase or revoke the restriction. The Ordinary resolution has to be registered at CH S.29&S.30);

3. Amend the articles by special resolution (SR must be registered at CH S.29/30 and also new articles must be registered at CH S.26 (unless new articles are model articles without any variation).

5. S.580: No issue of shares at a discount

6. Do pre-emption rights apply? [S.560-572]

• Definition: S.560 - process where shares must be offered to existing SH in proportion to their shareholding.

• Purpose: to give SH comfort that their shareholding will not be diluted.

Procedure :

1. Board meeting: do ‘checks’

2. If no SH resolution required

   1. Approve allotment (S.555 / Form SH01) – company has one month of allotting shares to deliver to Registrar a return of the allotment. The return must contain prescribed information [P.220 L.20 outline].

   2. Update register of members (S.554)

   3. Issue share certificate (S.769)

3. If SH resolution is required

   1. board adjourns

   2. GM / written resolution

   3. Board reconvenes and makes allotments as above

4. Filling:

   1. External

• Return of allotment – SH01 accompanies by statement of capital SH19 within 1 month [S.555]

• Copy of resolution to CH

  1. Internal

• Minutes, [S.248 – 10 years];

• All unanimous / majority decisions by directors [Model art 15]

• Update register – new shareholder – within 2 months [S.554]

• Aend out share certificate within 2 months [s.769]

• By Gift / sale

• Contract – gives purchaser equitable interest

• Legal title only passes when entry is made on company register [after paying for shares and before registration – transferee has a equitable interest only]

• S.770: need Stock Transfer Form to make proper transfer

• S.544: shares are freely transferable in accordance with the company’s articles [i.e. are there any special articles that restrict tansfer].

Procedure

1. Pre-emption rights – imposed by articles (not statute)

2. Transfer

3. Stamp duty on transfer (o.5% charge)

Transmission by operation of law (i.e. when transfer is automatic)

• PRs for deceased member

• Bankruptcy – Trustee in B

• Model Articles 27

• Tax on documents

• Applies to transfer of shares and interests

• Purchaser of shares pays the SDLT

• Consequence of failure to stamp = penalties...