Authority to allot (Allotment of shares)- FS Flashcards
(22 cards)
What are pre-emption rights in the context of share allotment?
Pre-emption rights give existing shareholders the right of first refusal over newly issued equity securities, ensuring that they have the opportunity to maintain their proportion of ownership and voting power before shares are offered to new investors.
What is the statutory basis for pre-emption rights under company law?
Pre-emption rights are governed by Section 561 of the Companies Act 2006, which restricts the allotment of equity securities to non-shareholders unless they have first been offered to existing shareholders.
Why do pre-emption rights exist?
They exist to protect existing shareholders from the dilution of their ownership and voting rights when new shares are allotted.
What type of shares are considered equity securities under the Companies Act 2006?
Under Section 560, ordinary shares are classified as equity securities, and therefore pre-emption rights apply by default when such shares are being allotted.
Can pre-emption rights be disapplied in a private limited company?
Yes, pre-emption rights may be disapplied either by a special resolution of the shareholders or by including an express disapplication in the Articles of Association, as provided under Section 569 of the Companies Act 2006.
What steps must directors take before allotting ordinary shares to a new shareholder under the default position?
They must first offer the new shares to the existing shareholders in proportion to their existing holdings, in accordance with their pre-emption rights.
What is the purpose of disapplying pre-emption rights?
Disapplying pre-emption rights allows the directors to allot shares directly to a new investor without first offering them to existing shareholders, thus bypassing the statutory offer process.
Under what circumstances might a company choose to disapply pre-emption rights?
A company may disapply pre-emption rights to streamline investment from new shareholders, raise capital quickly, or if the existing shareholders support the allotment but do not wish to purchase additional shares.
What are the legal instruments through which pre-emption rights can be disapplied?
Pre-emption rights can be disapplied either by amending the Articles of Association or by passing a special resolution of the shareholders.
What is the default legal position regarding the allotment of equity securities in a company with unamended model articles?
The default position is that pre-emption rights apply under Section 561, meaning the company must first offer new equity securities to existing shareholders unless those rights are formally disapplied.
What is the general three-step procedural structure for allotting new shares in a private limited company?
- A first board meeting to call a general meeting,
- A general meeting where shareholders pass a resolution to authorise the allotment,
- A second board meeting to approve and effect the allotment.
What type of resolution is usually passed by shareholders to authorise the allotment of shares?
Either an ordinary resolution (for general allotment authority) or a special resolution (to disapply pre-emption rights), depending on the legal and factual context.
Why is shareholder approval almost always required before allotting shares?
: Because allotting shares alters the ownership structure of the company and dilutes existing shareholders’ voting rights, it is deemed a significant decision requiring shareholder approval.
What is the purpose of the first board meeting in the share allotment process?
To pass a board resolution approving the notice of the general meeting, thereby formally initiating the process to seek shareholder approval.
What occurs at the general meeting as part of the allotment procedure?
Shareholders pass either an ordinary resolution to authorise the allotment or a special resolution to disapply pre-emption rights, depending on whether existing rights must be set aside.
What is the function of the second board meeting in the allotment procedure?
The directors pass a board resolution to allot the shares, execute the issue of the share certificate, and confirm the final action based on the resolution passed at the general meeting.
What statutory forms must be filed at Companies House after shares are allotted?
- The special resolution (if applicable),
- Form SH01 (Return of Allotment),
- An updated Statement of Capital,
- Form PSC01 (if there are changes to persons with significant control).
What company registers must be updated after a share allotment?
The Register of Members and the Register of Persons with Significant Control (PSC) must be updated to reflect the new ownership and changes in control thresholds.
When must existing shareholders be removed from the PSC register after a share allotment?
When their shareholding drops below 25%, they no longer meet the statutory threshold for being a Person with Significant Control.
What additional company records must be updated following a share allotment?
The minutes of both board meetings and the general meeting must be formally recorded and stored in the company’s minute book.
What is the purpose of issuing a share certificate during the allotment process?
To provide formal legal evidence that the new shareholder owns the allotted shares and is now a member of the company.
Under Section 570(1) of the Companies Act 2006, what authorisation is needed to disapply pre-emption rights?
A special resolution is required to disapply pre-emption rights under Section 570(1) before allotting equity securities to someone other than existing shareholders.
