You can issue more shares in a private limited company at any point after incorporation. However, there are a number of factors that you will need to first consider before issuing (‘allotting’) additional shares to new and/or existing members, including authorised share capital, pre-emption rights, and the directors’ power to authorise allotments.
These types of restrictions on the allotment of shares are put in place to protect shareholders’ rights and the company as a whole. Therefore, it is important to check the articles of association and shareholders’ agreement (if applicable) to verify the company’s particular rules, restrictions, and procedures vis-à-vis issuing shares after incorporation.
What is authorised share capital?
This was a mandatory provision under the Companies Act 1985 that restricted the amount of share capital a company could issue. Before the Companies Act 2006 came into full effect on 1st October 2009, limited companies had to state their authorised capital in their memorandum and articles of association. This was shown as a sum of money divided into a quantity of shares of a fixed amount. Companies were not required to issue shares up to the limit, but they were prohibited from exceeding the authorised sum.
The mandatory provision of authorised share capital was abolished because Stamp Duty was no longer payable on authorised capital. Previously, companies were required to pay Stamp Duty to HMRC when they were incorporated at Companies House – so the higher the authorised capital, the higher the Stamp Duty fee. This is why so many companies were set up with share capital of just £100. Stamp Duty on shares is now only payable when shares are sold for a sum in excess of £1,000.
Any company that retains the provision of authorised share capital in its articles can now remove it or increase the authorised sum. It is also possible for companies to add this provision to their articles at any time during or after company formation. To alter the articles after incorporation, shareholders (members) must pass a special resolution.
The total share capital of a company determines the limited liability of its shareholders. Therefore, some companies still wish to restrict the total financial liability of their members to a lower sum.
What are pre-emption rights of existing shareholders
Pre-emption rights on the allotment or transfer of shares may be included in the articles of association and shareholders’ agreement to protect the beneficial rights of members. If pre-emption rights are stipulated, new shares must first be offered to existing members before they can be made available to anyone else. This provision is designed to protect the rights of current members by preventing the unfair dilution of their shares.
When new shares become available, members can waive their pre-emption rights (by writing to the company or passing a special resolution) or buy available shares in proportion to their current percentage of ownership.
Directors’ powers to issue more shares
Directors’ powers are granted by members and outlined in the articles of association. Some companies will allow their directors to issue more shares without seeking approval from members or being subject to any time limits, whilst others will restrict their directors’ powers in these situations.
If any such restrictions exist, the owners of the company will have to pass a resolution to authorise any allotments. This enables members to prevent the unfair dilution of their shares and maintain control of their current percentage of ownership.
How to complete a Return of Allotment of Shares
A Return of Allotment of Shares (Form SH01) must be completed and delivered to Companies House within one month of any allotment. The following information will be required on this form:
- Full company name
- Company registration number (CRN)
- Date(s) of allotment(s)
- Details of the allotted shares – class, quantity, currency, nominal value, amount paid or unpaid on each
- Details of any non-cash payments, for example: awarding bonuses or selling shares in exchange for anything other than cash
- Statement of capital detailing the company’s total issued capital at the date of the return
- Prescribed particulars attached to each share
- Authorising signature on behalf of the company
You can deliver the Return of Allotment via Companies House WebFiling service or Rapid Formations’ free Online Admin Portal.
There is no need to provide the names of any new members at this time. You will include this information on the next annual Confirmation Statement (previously known as an annual return). Companies House will then update the public register accordingly. If you wish to update members’ details sooner, simply file/update your Confirmation Statement at your earliest convenience.
A share certificate should be issued to the relevant member with each allotment. The company should also retain copies of these certificates and update the statutory company records to include details of the new allotments and members.