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. A share allotment can provide funds for your business to expand and grow.
However, before you go ahead and issue new shares, there are some compliance issues to bear in mind. Today we look at how you can issue new company shares in a way that protects your best interests.
Why issue new shares?
You may choose to allot new shares because:
- The number of shares held by existing shareholders needs to change
- You have taken on a new shareholder
- You need to raise capital
It is always wise to seek legal advice before allotting new shares or making share transfers. This is because you need to ensure that you comply with the company’s articles of association, as well as relevant legislation. In addition to this, there are tax implications for new share allotments which you need to be aware of.
How to issue shares
The first task is to check your company’s articles of association in case there is an existing restriction in place. You may find that shares can only be allocated to family members or existing shareholders, for example.
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. You can find out more about purchasing existing shares here.
Before new shares are issued, the following process must be followed:
- The Company’s Register of Members must be updated
- The PSC Register must be amended if the allotment of shares change’s your business’s PSC position
- File documents at Companies House – Form SH01, and the shareholder resolutions
An application for shares only becomes binding on a new shareholder when the company notifies him that it accepts the application.
Share requirements
Share certificates should be issued within two months of the share allotment. It’s typical that businesses want to issue share certificates a lot quicker than that. Until the share application is accepted, the potential shareholder can withdraw the application, which causes potential problems.
The Form SH01 must be delivered to Companies House within a month of the date of the share allotment. The SH01 form does not require details of the shareholders to whom shares have been issued, just the shares themselves. New share certificates do not need to be lodged at Companies House: they are simply sent to the shareholders.
You’ll need to liaise with your accountant to ensure that the new share allotments are correctly reflected in the company’s accounts for the period. When you issue new shares, it increases the level of shareholders’ funds shown in the balance sheet, whereby different treatments are given in respect of the nominal values of shares and share premium.
Find out more about issuing shares by getting in touch with our friendly team. We can help with all legal matters relating to issues shares and any other business issues.
