#4951 - Issuing Shares - Business Law and Practice

Issuing shares Yes Step 1 - Is there any cap on the number of shares that may be issued by an authorised share capital Incorporated under CA 1985 General rule Companies Act 2006 (Transitional Provisions and Savings Order) 2008, Schedule 2 paragraphs 42(1) and 42(2)(a) The company's authorised share capital under the CA 1985 is now a deemed restriction in the company's articles and therefore the company will continue to have a cap. s.28 Companies Act 2006 Anything in the memorandum is automatically shifted to the articles Are there sufficient un-issued shares available within the cap? Move to Step 2 No How can the cap be removed? 1985 SI 2008/2860, Schedule 2, paragraph 42(2)(b) The cap can be removed, modified or increased by ordinary resolution Exception The company, despite being formed under the 1985 CA, may now have adopted the model articles from the 2006 CA by special resolution. As these do not contain a cap the company will no longer have a cap on the authorised share capital Incorporated under CA 2006 General rule Model Articles Under the model articles the company is not required to have an authorised share capital and can issue as many shares as it likes Yes Exception The articles of association / model articles can be amended by special resolution to include suitable provisions to impose a cap on shares issued Are there sufficient un-issued shares available within the cap? No How can the cap be removed? s.21 CA 2006 The cap can be removed, modified or increased by special resolution Move to Step 2 Step 2 - Do the company's directors need authority to allot? Incorporated under CA 1985 or CA 2006 General rule s.549 CA 2006 The directors of a company must not exercise any power of the company to allot shares Exceptions 1) Private company with only one class of shares and remains having one class of shares after the issue of shares s.550(a) CA 2006 * This exception does NOT apply if the company has one class of shares, but after this issuing procedure, it will have two or more. * Directors will already have the power to allot shares * UNLESS the company's articles prohibit / restricts them doing so 2) Authorisation is given by the company s.551(1) CA 2006 * Authorisation to issue shares can be given to a director s.281(3) CA 2006 * This can either be in the company's articles or by shareholder resolution * Shareholder resolution = o Ordinary resolution UNLESS o The articles require a higher majority Consequences of allotting without authority Restrictions on allotting shares * For allotting shares for private companies with only one class of shares there may be restrictions in the company's articles * For authorisation by the company, within the ordinary resolution there can be certain restrictions * These may include: o Time restrictions (e.g. authorisation to allot shares for 5 years)S.551(7)Can still allot after the time period has expired if the agreement to allot the shares was made before the authority expires o Amount of share restrictions (can only allot 100,000 shares within this authorisation. Would have to get further authorisation to allot shares over this number) Validity of the allotment of shares s.549(6) CA 2006 The allotment to the new holder of shares will still be valid Consequences for directors s.549(4) and (5) Any director who knowingly and wilfully contravenes s.549 requirement for authorisation, or permits or authorises a contravention of the section, commits a criminal offence and is liable to a fine. Revocation of authority to allot How to revoke authority to allot under authorisation by the company s.551(4)(b) CA 2006 By passing an ordinary resolution even though you may be altering the articles (s.551(8)) as the s551 authority may be in the articles. Will the revocation of s.551 authority affect a subsisting disapplication of pre-emption rights under s.561 s.570(3) CA 2006 The subsisting disapplication of pre-emption rights will no longer be valid