Equity Finance - Procedure for Allotment of Shares

Question 1

Step 1?

Answer 1

Check for Cap on Share Capital

Question 2

What was the authorised share capital (ASC) under the old CA 1985?

Answer 2

A ceiling on the number of shares a company could issue, originally set out in the memorandum. It no longer applies under CA 2006 but may still exist in Articles if expressly inserted

Question 3

How can a cap on share capital be removed under CA 1985?

Answer 3

By ordinary resolution, even though amending the Articles normally requires a special resolution under CA 2006

Question 4

What must you check at Step 1?

Answer 4

• The articles for any cap
• Whether any resolutions have been passed removing, amending or imposing a cap
• The register of members and Form SH01 filings to verify issued share capital

Question 5

Step 2?

Answer 5

Do directors need authority to allot?

Question 6

Directors may not allot shares unless authorised by:

Answer 6

• s550 - directors of a private company with one class of shares have automatic authority to allot shares, unless the Articles state otherwise
• s551 - shareholders must grant authority by ordinary resolution, or via provisions in the Articles, to allow directors to allot shares. This authority must be limited in time and scope

Question 7

Step 3?

Answer 7

Must Pre-emption rights be disapplied?

Question 8

What are pre-emption rights under CA?

Answer 8

A right of first refusal for existing shareholders to subscribe for new equity securities before they are offered to outsiders

Question 9

What are ‘equity securities’?

Answer 9

• Ordinary shares or
• Rights to subscribe or convert into ordinary shares.

Question 10

When are shares not Equity Securities?

Answer 10

Share are not equity securities if both dividend and capital participation rights are capped

Question 11

When must Pre-emption rights be disapplied?

Answer 11

When the company wished to issue Equity securities to a new investor and does not want to follow the statutory procedure

Question 12

How can a company disapply pre-emption rights?

Answer 12

1. General disapplication - tied to s551 authority
2. Private company with one share class - by special resolution
3. Specific disapplication - for named issue
4. Exclusion Articles - under s567

Question 13

What is required for specific disapplication?

Answer 13

A written statement to shareholders explaining:
- The reason for disapplication
- the amount payable
- a justification for the price

Question 14

Step 4?

Answer 14

Are new Class Rights being created?

Question 15

What must a company do when creating a new class of shares?

Answer 15

It must amend its Articles to reflect the new class rights by special resolution

Question 16

Where are class rights typically set out?

Answer 16

In the Articles of Association

Question 17

Step 5? What is final step before shares are issued?

Answer 17

The board of directors must resolve to allot shares

Question 18

When is a general meeting not required before the board resolution?

Answer 18

If:
- There is no cap or the cap has been removed
- The directors have authority to allot
- Pre-emption rights are not applicable or have been disapplied
- Class rights are already established in the Articles

Question 19

What resolutions must be sent to CH after allotment?

Answer 19

• s551 resolution granting authority to allot
• Special Resolutions disapplying pre-emption rights
• Amended Articles, if new class rights have been added

Question 20

What forms must be filed with CH?

Answer 20

• Form SH01 - Return of allotment within one month
• Person of Significant Control (PSC) forms: If allotment changes persons with significant control

Question 21

What company registers must be updated?

Answer 21

• Register of members (within 2 months)
• PSC register, if relevant