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Allotment and issuing of shares - Coggle Diagram
Allotment and issuing of shares
A person can become a shareholder by
Having new shares allotted to them
By acquiring existing shares from an existing shareholder
Shares are allotted 'when a person acquires the unconditional right to be included in the company's register of members in respect of the shares'
Shares are issued when the person's name is actually entered into the register of members
Authority to allot shares
A decision to allot shares must be taken on its behalf by the directors
Where a private company has only one class of shares, then the directors are authorised to allot more shares of that class on behalf of the company
The directors will only have the authority to allot shares on behalf of the company if they are authorised to do so by the company's articles or by a resolution of the company
The model articles state that the company may issue shares with such rights or restrictions as may be determined by ordinary resolutions
Irrespective of how authority is granted upon the directors, it is subject to the following
Authorisation can be given for a specific allotment only or it can be granted to the directors generally
Authorisation can be unconditional or subject to conditions
The authorisation must
State the maximum amount of shares that may be alloted under it
Specify the date on which it will expire which cannot be more than 5 years from the date the authorisation is granted
Authorisation can be renewed for a further period of up to 5 years by a resolution of the company
Authorisation can be revoked or varied at any time by a resolution of the company
A resolution to give, vary, revoke or renew authorisation may be an ordinary resolution, even though the effect of the resolution is to alter the company's articles
Within one month of making an allotment of shares, the company must deliver to CH a return on the allotment (Form SH01) that provides specified information of the allotment
Share warrants
A document that states that the person who holds the warrant is the holder of the shares specified in the warrant
The person is not a member as their name is not entered in the register of members
The shares held under the warrant can be transferred simply by handing the warrant to someone else
It was very difficult for a company to know who held such shares and this opacity could be used to facilitate unlawful acttvities
Minimum share capital
Public companies are subject to a minimum alloted share capital reuirement
The authorised minimum share capital for a public company is £50,000
Pre-emption rights
If shares are alloted to a person who is not already an existing shareholder, the effect of the allotment will be to dilute the voting rights of the existing shareholders
CA2006 provides that a company must not allot equity securities to a person unless
It has made an offer to each person who holds ordinary shares in the company to allot to them on the same or more favourable terms, a proportion of those securities equal to the proportion in nominal value held by them (as near practicable) of the ordinary share capital of the company
The period during which any such offer may be accepted has expired or the company has received notice of the acceptance or refusal of every offer made
Three types of share allotment will not be subject to pre-emption rights
Bonus shares
Shares that are, or are to be, wholly or partly paid up otherwise than in cash
Shares that are alloted as part of the employee share scheme
Pre-emption rights can be excluded by the company in a number of situations
The articles of a private company can exclude pre-emption rights
Pre-emption right will not apply where the company's articles already contain such a corresponding right and that article provision has been complied with
The directors of a company with only class of share may ignore pre-emption rights if they are empowered to do so by the articles or by a special resolution of the company
Where the directors are authorised to allot under s.551 then they may be given the power either through the articles or via a special resolution of the company to allot shares without pre-emption rights applying
Where the directors are authorised to allot shares under s.551 then the company may by passing a special resolution exclude or modify pre-emption rights in relation to a specified allotment, providing that the directors make a statement
Payment for shares
When shares are allotted, the terms of the allotment will specify whether the shares allotted will be
Fully paid
Partly paid
Nil paid
Where shares are not fully paid on allotment, the company can either require the allottee to pay the remainder via a series of fixed instalments or the company can issue a call notice which requires the allottee to pay a specified amount
The risk with allowing partly paid or nil paid shares is that the allottee may not pay the remaining amount, in such a case, the articles will usually provide the company with some form of remedy
The model articles provide that if an allottee fails to pay an instalment or comply with a call notice
The company will have a lien over any partly paid shares and if the required payment is not received within 14 day days, the company can sell those shares
The company can send the allottee a notice of intended forfeiture and if payment Is not received within 14 days, the directors may decide that the shares are forfeited
The allottee will cease to be a member but remains liable for the sums payable
Forfeited shares are deemed to be the company's property and so can be sold, re-allotted or otherwise disposed of as the directors see fit
Means of payment
S.582 provides that shares allotted by a company and any premium on them, may be paid up in money or money's worth
It is possible to pay for shares with non-cash consideration such as goods and services but this is limited in the case of shares in a public company in several ways
A public company must not accept an undertaking that he or someone else will do work or perform services for the company. If a public company does accept such an undertaking, the undertaking remains enforceable. The person who gave the undertaking is liable to pay the nominal value and any premium and they will commit an offence
A public company cannot accept as payment an undertaking which is to be performed more than 5 years after the date of allotment. If the company does accept such an undertaking, the undertaking remains enforceable. The person who gave the undertaking is liable to pay the nominal value and any premium in relation to the shares received and they commit an offence
A public company cannot accept non-cash consideration as payment for shares unless the non-cash consideration has been independently valued and a copy of the valuation report made available to the company and the proposed allottee. A breach of these rues can result in the allottee being liable to repay to the company an equal equal to the nominal value and any premium on them. An offence will also be committed
Allotment of shares at a discount
CA2006 provides that a company's shares must not be alloted at a discount
If shares are allotted at a discount then the allottee is liable to pay the company an amount equal to the discount plus interest, there is an exception to this in relation to commission
S.552 aims to combat this by prohibiting a company from paying commission to a person who agrees to subscribe for shares or who procures or agrees to procure subscriptions fo shares in the company. Such commission can be paid if
The payment of commission is authorised in the articles
The commission paid or agreed to be paid does not exceed 10% of the price at which the shares ae issued or the amount or rate authorised by the articles
Share certificates
Within 2 months of the allotment of shares, the company must have ready the share certificates for delivery to the relevant holders
A company need not compete and deliver share certificates if
The conditions of the share allotment provide that share certificates will not be delivered
The shares are alloted to a finical institution
The shares that are alloted are uncertificated
A share certificate fulfils 2 functions, first it provides basic information about the shares to which it relates and provides evidence that the person named on it holds legal title to the shares the certificate relates to
The share certificate only provides prima facie evidence of the holders title to the shares, meaning that the holders claim to hold legal title to the shares can be rebutted
Conclusive evidence as to who holds share is found in the register of members