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Share capital - Coggle Diagram
Share capital
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Authority for allotment
Directors must not exercise the company's power to allot shares or grant rights to subscribe for shares unless authorised by CA2006 ss.550 or 551. This requirement does not apply to the
Allotment of shares or grant of rights to subscribe for shares allowed under an employee share scheme
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The directors of a private company with only one class of shares can exercise the company's power to allot shares or grant rights to subscribe for shares without any additional member consent subject to any restrictions in the company's Articles
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The authority to allot relevant securities may be revoked, varied or renewed by ordinary resolution even if the authority was given by a special resolution or contained in the Articles
A resolution renewing an earlier authority must state the aggregate number of shares that may be allowed and an expiry date within 5 years
Securities may be allotted after the expiry of the authority provided that the allotment relates to an offer or agreement authorised by the directors prior to the expiry of their authority
A copy of a resolution giving authority to directors to allow relevant securities must be filed with the Registrar within 15 days after it is passed
Pre-emption rights
The Act provides that, unless misapplied in whole or in part by the Articles, whenever new shares are to be allowed, they must first be offered to existing shareholders in proportion to their existing holdings
Fr many companies these provisions are excluded by the Articles or waived by special resolution of the members either annually where an AGM is held or on an ad hoc basis
Listed companies will routinely seek a waiver of the pre-emption provisions from members at each AGM for small issues of new shares
The allotment and issue of securities that can be converted into relevant shares are also included but the following allotment and issues are excluded
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Shares that as regards dividend and capital, carry rights to participate only up to a specified amount in a distribution
Shares held by a person acquired through an employees share scheme or which are to be allowed in pursuance of such a scheme
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Any pre-emption right contained in a company's Articles take precedence over the statutory pre-emption rights
The requirement of the Act is that no equity securities may be allotted unless they have first been offered to the holders of all the relevant shares in the company in proportion to their existing shareholdings
The detailed provisions with regard to the communication of the offer to the existing members who must be given a period of not less than 14 days in which to accept the offer, are laid down in CA2006 s.562. A record date to determine the members entitlement under the offer must not be more than 28 days before the date of the offer
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Payment for shares
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The allotment of shares at a discount or in exchange for an undertaking to perform work or services is prohibited
Subsequent holders of shares may incur liability if any of the provisions relating to the payment for shares are contravened
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Once has a company has issued shares there are only limited circumstances under which they can be returned to the company as follows
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Allotment procedure
The directors should ensure that they have sufficient authority to allot shares and that any pre-emption rights on the allotment of shares are not infringed or to the extent that they are, that the necessary waivers have been received, either in writing by a memebrs resolution
If the company's Articles to restrict the aggregate number of issued shares, it will be necessary to obtain the members approval to a resolution to increase the directors authority to allot shares as necessary
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Issue price
There are no provisions regarding the price at which shares should be issued other than a general rule that shares cannot be issued below their nominal value
Directors have a duty to act in the interests of the members and so the price at which any new shares are to be issued must take that duty into account particularly the circumstances where it is expected that not all, if any existing members will participate in the new share issue
Part payment
Although partly paid shares are generally rare, they are most often found in the case of a non traded public company where the minimum amount payable on the shares is paid up
When issuing new shares, it is important to ensure that there is sufficient current authority in terms of CA2006 ss.550 or 551 for the directors to approve the issue and that any right of pre-emption whether as set out in the Act or in the company's Articles are observed or waived