Issuing more shares in a private limited company

After forming a limited company, you can issue more shares. You may be willing to do this to increase additional capital, get a business partner or achieve other kinds of objectives.


You will have to consider several factors before allotting more shares in your company, such as:


1.     Authorized share capital,

2.     pre-emption rights, and

3.     the directors’ powers to allot 

 

Authorized share capital


Under the Companies Act 1985, this was a mandatory provision that restricted the maximum amount of share capital that a company could issue. Before the Companies Act, 2006 came into full force on 1 October 2009, limited companies had to declare their authorized capital in their memorandum and articles of association. This was demonstrated as a sum of money split into a number of shares of a fixed amount. Companies were not required to issue them all, but they were not allowed to issue more than the authorized amount.

That provision is removed because Stamp Duty is no longer payable on authorised capital. Once a corporation is registered with Companies House, it is required to pay Stamp Duty to HMRC; thus, the higher the authorised capital, the higher the Stamp Duty payment.

Any company that contains this provision in its articles can now remove it or raise the authorised sum. Companies can add this provision to their articles at any time during or after incorporation. To change the articles after company formation, company members should pass a special resolution.  

The total share capital of a company determines the limited liability of its shareholders (members); therefore, some companies still wish to restrict the total financial liability of their owners to a lower figure.


Pre-emption rights of existing shareholders


Pre-emption rights on the allotment of shares may be included in the articles of association and an agreement between shareholders to protect beneficial rights. If there are pre-emption rights, the existing members must first be offered new shares before they can be offered to anyone else. The provision is intended to protect current owners ' rights by prohibiting their shares from being eroded unlawfully. 

If new shares are available, members can revoke their pre-emption rights (by writing to the organization and adopting a special resolution) and buy the available shares in proportion to their current ownership percentage. 


Powers of directors to issue more shares


The powers of directors are given by members and outlined in the articles of association. Some organizations will require their directors to accept allotments without requiring members ' permission or being subject to any time limits, while others will restrict the powers of their directors in such situations.

If there are any such limitations, the company's owners will have to pass a resolution to authorize any allocations. It helps them to maintain control of their current ownership percentage by keeping their shares from being reduced unfairly.

 

Completing a Return of Allotment of shares

A ‘Return of Allotment ' (Form SH01) should be completed and delivered to Companies House within one month of any allotment. 

 

Following are the information which will be required on this form:


  • Full name of the company.
  • Date(s) of allotment(s).
  • Company registration number (CRN).
  • Statement of capital explaining the total issued capital of the company at the date of the return.
  • Details of the allotted shares, such as class currency, quantity, nominal value, the amount paid or unpaid on each.
  • Details of any non-cash payments, such as, awarding bonuses or selling shares in exchange for anything other than cash.
  • Prescribed particulars attached to each of the shares.
  • Authorising signature on behalf of the company.

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