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LPC Law Notes Business Law and Practice Notes

Issuing And Allotting Shares Notes

Updated Issuing And Allotting Shares Notes

Business Law and Practice Notes

Business Law and Practice

Approximately 649 pages

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Company Law – Private Limited Companies

Issuing and Allotting Shares

Issuing Shares

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.

Pre-E rights on ISSUE of shares

  • Imposed by statute

  • S.561: offer to existing SH first in proportion to their existing holdings

  • S.562: manner in which offer must be made (14 days to accept / post or electronic form etc)

  • S.563: compensation if 561 or 562 is contravened.

S.561 – 563 will NOT apply where

1. S.565: non cash consideration [therefore it stands to reason that P-E-Rights only apply where the relevant shares are to be issued for cash [this is within the definition of S.560].

2. Company is offering something other than equity securities [i.e. it is not offering equity securities] (S.560 definition – SEE ALSO Sgs.23 class exercise 1 model answer for definition - e.g. equity securities = Non-participating preference shares]

3. S.567: company has excluded or dis-applied statutory rights through company articles. (Pre-E rights will be excluded to the extend that they are inconsistent with articles)

4. EXCLUDED by way of S.569, 570, 571:

Exclusion of Pre-E rights by ststute

  • S.569 – private company with one class of shares – special resolution

  • S.570: Directors with general authority to allot shares (under S.551) can be given further power by articles or get a SPECIAL RESOLUTION to allot shares so the Pre-E will not apply.

  • S.571: D has general / specific authority to allot shares pass SR so that PreE rights will not apply to a specific allotment made pursuant to that authority.

Note: dis-aplication under Ss.569-571 limited to...

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