Exam (elaborations)
Allotment of New Shares
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Easy to use procedure for allotment of new shares, including shareholder approval required and directors approval required, with relevant legislation.
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Allotment of New Shares – ProcedureCompany Finance 1 – Notes1. Directors Check Articles for Restriction of ‘Authorised Share Capital’
Pre -1 October 2009: companies required to have ‘authorised share capital’ (stated on Form
IN01 when incorporated) which was automatically transferred to the articles:
s28 remove or amend by OR rather than usual SR to amend articles (under the
transitional provisions in SI 2008/2860, Sch 2, para 42).
Post-1 October 2009: If company formed under CA 2006 but includes restriction on number
of shares it can issue in amended/bespoke articles (rare in practice):
SR to remove limit by changing the articles.
Model Articles: no restriction.
2. Director’s Authority to Allot Shares
Private company with one class of shares: s550 directors have authority to allot shares,
provided only one class and nothing to contrary in articles.
If pre-1 October company wants to make use of s550 power – pass OR, exists
permanently (Companies Act (Commencement No 8, Transitional Provisions and Savings)
Order 2008 (SI 2008/2860), Sch 2, para 43).
All other companies: Directors must be given authority to allot shares:
In articles – pass SR to change articles, or
OR or SH WR (ss549-551).
Must state number of shares directors authorised to allot, and period of time authority lasts
(max. 5 years). Can be renewed for further 5 years.
Authority can be revoked by SH OR at any time.
3. Statutory Pre-emption Rights
Check articles if pre-emption rights removed/applies to non-cash (no provision in MAs for
disapplication).
s561 shares being issued in exchange for cash only (s565) must first be offered to existing
SHs:
same amount of shares already owned,
offer open for 14 days,
Only if existing SH declines can they be offered elsewhere.
Disapplication in Private Company:
s569 - pass SR, or adding provision to articles to dis-apply pre-emption rights.
Advantage of changing articles: disapplication can be indefinite, usually used in small PCs.
s567 - including special article either generally or in relation to particular allotments.
s568 - pre-emption provisions in the articles will override s561, though notice under
s562 still applies unless excluded in articles.
s570 - passing SR where Ds authorised generally to allot shares under s551 – only lasts
as long as the s551 authority itself.
Disadvantage: not as advantageous as s569 option.
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