What is a Share Issue?

A share issue involves a procedure where companies pass on new shares to new or existing shareholders. Companies can issue these shares to the public, private investors and corporate bodies to raise money to finance a business. When making a share issue, certain formalities must be abided by, this includes filling out a SH01 Form that is required by Companies House.

Before turning to the process of issuing shares or what is sometimes referred to as ‘allotment of shares’ it is critical to evaluate alternate options for capital injection, particularly where one will give up a certain level of control of their business. Alternate remedies include bank loans, an overdraft facility, loans from directors, sale and leaseback of assets or other equipment and government grants if applicable.

There are also several legal implications that must be critically considered relating to allotting shares, these concern the following areas:

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• Do the directors have the authority to issue shares

Authority is a vital factor to consider and must be granted by either a provision in the company’s articles of association or by an ordinary resolution that is passed by the company’s shareholders. There are exemptions to seeking authority for private limited companies incorporated under the Companies Act 2006, specifically, if there is no restriction under the companys articles of association, the company has one class of shares, and if this new share issue does not create a new class of shares.

• Authorised share capital limit

If a company was formed before October 2009 and has failed to amend its articles of association, you will need to investigate the overall limit on the number of shares that the company are authorised to issue. In order to tackle this, a special resolution may be needed to amend the articles of association to remove this restriction. An ordinary resolution may also need to be passed in order to increase this limit to accommodate for the new share allotments.

• Is a shareholder’s agreement in place?

If there is a shareholders agreement in place, it is paramount to identify any restrictions that may be placed on issuing new shares or where one is not in place, whether a clause detailing this matter should be added.

• Pre-emption rights

Pre-emption rights allow existing shareholders to refuse new shares being admitted. These rights may be waived by current shareholders or entirely refused and requires that the shares be offered to the current shareholders before any potential new investors.

If the articles of association for a private company, if the terms are bespoke, it is also important to identify if any restrictions are already in place with regard to allotment of shares. This procedure must be clarified before any further progression on the process that is share issue.

How can Hillary Cooper Law help with a Share Issue or pre-emption rights?

Our team of legal experts can advise on all aspects of share issues. Our team will ensure to tackle any obstacles when proceeding with the share issue and can not only help you to understand the process but assist with the negotiation process.