Issuing shares in your company can help bring in the capital required to grow your business, fund an innovation, or back up your cash reserves.
Before you can issue (allot) new shares, however, there are several compliance issues you must be aware of. In this short article, we explain how you can issue new company shares in a way that protects your best interests.
Why are new shares issued?
Your company may decide to allot new shares because:
- The number of shares held by existing shareholders needs to change
- It has taken on a new shareholder
- It needs to raise capital
It is always wise for a company to seek legal advice before allotting new shares or making share transfers.
You will need to ensure you comply with the company’s articles of association as well as relevant legislation. Furthermore, there are tax implications for new share allotments which you need to be aware of.
How to issue more shares?
Before you issue new shares you must check your company’s articles of association in case a restriction regarding share allotment is in place. For example, the articles may state that new shares can only be issued to existing shareholders and their family members.
If your company has only one class of share a director can allot shares of that existing class without prior shareholder approval, provided that the articles do not prohibit such an action. Directors of a company with more than one class of share will need to get shareholder approval to allot new shares (unless the articles provide that approval is not required). Consent is obtained via an ordinary resolution of the company’s members.
In the case of existing shares, you will need to check whether any pre-emption rights exist. Pre-emption rights state that any new shares must be offered first to existing shareholders in the company, giving them the right of first refusal.
Why is the correct registration of allotted shares important?
The following actions need to be taken before the new shares are allotted:
- The Company's Register of Members must be updated;
- If the allotment changes the company’s PSC position you will need to amend the PSC Register;
- The below documents will need to be filed at Companies House:
- Form SH01
- Shareholder resolutions required for the allotment to take place.
Get legal assistance from LawBite
At LawBite, we can assist you with all legal matters relating to issuing shares or other company issues. Find out more about our company shareholder management solution and book a free 15-minute consultation with one of our expert lawyers.