Lecture notes
Equity Finance Revision Notes
- Module
- Company Law
Issuing new shares Doctrine of Capital Maintenance Financial assistance
[Show more]
Seller
Follow
Content preview
COL WS7 Equity FinanceISSUING NEW SHARES
Allotted Share Capital – when a person acquires the unconditional right to be included in the company’s
register of members (s558 CA 2006).
Issued Share Capital – all shares issued by the company included in the register of members. Public
companies are required to have a minimum allotted share capital of £50,000 (s761 & s763).
Issues that need to be considered when issuing new shares in a private limited company
1. What are the different types of shares that could be issued?
o Ordinary – right to vote at GM, right to receive a dividend if declared, right to receive capital when
company is wound up.
o Preference – entitled to have dividends paid at predetermined rate in priority to ordinary shares,
right to priority on a winding up.
Cumulative – arrears of preference dividends not declared in earlier years must be paid
alongside that of the current year, before anything is paid to ordinary shareholders.
Participating – can participate in a dividend or capital on winding-up alongside ordinary
shareholders; will receive both their fixed preferential dividend/fraction of capital and a
fraction of the general dividend/capital in accordance with their shareholding.
2. What rights might attach to the new investors shares? – name of type normally indicates this, but not
always definitive so need to check with client.
3. What is the procedure the company must follow to allot the shares?
a) Check whether there is a cap on the number of shares that can be issued
o Company was incorporated in 2013 – CA 2006.
o Check the amount of authorised share capital (ASC) – MA CA 2006 has no cap.
o Check the articles of association/memorandum of association for restrictions? – Rose has
MA with 2 amendments, check what they are?
b) Check whether the directors have authority to allot these shares – s549 directors have no power
to issue shares except in accordance with:
o s550: automatic authority to allot if only one class and issuing more of the same.
o s551: ordinary resolution from shareholders (lasts for up to 5 years and for a certain number
of shares only).
o If issuing ordinary shares (same class), directors have automatic authority, but if not same
class directors would need shareholder approval by ordinary resolution.
o NOTE – Rose does not use written resolution procedure and only holds GM’s on full notice
to allow time for Derek Belling (grandfather) to arrange his attendance (40% of shares held).
Would only require 2 of 3 shareholders to pass threshold for ordinary resolution.
c) Check whether pre-emption rights need to be disapplied
o s560: ‘equity securities’ are “shares other than shares that as respects dividends and capital
carry a right to participate only up to a specified amount in distribution”.
o s561: ‘equity securities’ should be first offered to existing shareholders, who are given right
of first refusal – apply when the new shares are classed as ‘ordinary shares’.
o Pre-emption rights only do not apply to preference shares that have capped preference
rights in regard to both dividends and capital (non-participating preference shares).
1
, COL WS7 Equity Finance
o shareholders can disapply pre-emption rights through special resolution –
o s569: directors of a private limited company with only one class of shares where new shares
to be issued are of same class – shareholders may agree to disapply by special resolution.
o NOTE: need unanimous agreement by shareholders of Rose, otherwise will not
reach 75% for special resolution.
o s570: pre-emption rights can be disapplied by special resolution where the directors of the
company are under a general authority to issue shares.
o S571: shareholders may pass a special resolution to disapply pre-emption rights in relation
to a particular share allotment only.
d) Check whether a new class of share rights needs to be created?
o s21(1) MA: Articles need to be amended to create a new class of rights (check if there is any
amendments that restrict this).
o s558 CA 2006: Articles must be amended by shareholder special resolution.
e) How will the directors allot the shares?
o Board must pass a Board Resolution to call a General Meeting.
o General Meeting – Ordinary Resolution and Special Resolutions must be based.
o Board Meeting to implement everything that has been passed in the General Meeting.
o s122 CA 2006: full legal title to shares only achieved when registered at Companies House.
2
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller antoniaszapary. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67866 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now