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.
Can I set up a private company with two of types of shares???
Thank you for your kind enquiry, Rodwell. Yes, you can set up a company with two or more different types of shares.
For more information, please see this blog: https://www.rapidformations.co.uk/blog/a-guide-to-shares-in-a-limited-company/
Alternatively, give us a call on 020 7871 9990, or email us at info@rapidformations.co.uk and we can assist with setting up a company with multiple share class types for you.
Regards,
Rachel
Hi Sharon,
I have recently filed an SH01 form to include new directors and shareholders, I understand I now need to update my Combined Register, mainly register of members. Do you offer or sell a register template?
Thanks,
Dan
Hi Dan,
If you’re an existing client you can purchase a hardback loose-leaf company register at any time by logging into your account on our website and visiting the shop area. The price is £19.99 plus VAT.
If you are not a client, you can create an account on our website free of charge to access the shop and purchase the hardback register.
Use this link to sign in or create a new account: https://client.rapidformations.co.uk/login/
Let me know if you need help with anything else.
Rachel
could you let me know how the stock transfer form would look like – A template if you have one.
Dear Karpio,
You can find our stock transfer form template here
Best regards,
Hi,
I want to raise capital for my private limited company by selling a stake of £6 million to several investors. Am I allowed to do this, being the director of the company? And what are legal implications?
[This is a UK pvt. ltd. co.]
Thank you:)
Dear Judith,
Thank you for your message.
The company is allowed to sell shares to raise extra capital unless there is anything in the Memorandum & Articles for the company which prevents it. I would advise taking advice from an accountant or lawyer before proceeding with a share issue.
Kind Regards
Being a director of a private company based in London, am I allowed to promote to prospective investors if I would like to raise capital for the business(by selling minority stake in company)? Or is it that such financial promotions can only be made by regulated persons?
Dear Judith
Thank you for your message.
The company in which you are a director is allowed to sell shares to raise extra capital unless there is anything in the Memorandum & Articles for the company which prevents it. I would advise taking advice from an accountant or lawyer before proceeding with a share issue.
Kind Regards
Hi Rachel,
Thank you for your message.
I would like to slightly rephrase my question. Am I, as company director, allowed to promote such an investment in my company without being a regulated individual according to the FCA (Financial Conduct Authority)?
Kind regards
Hello,
Can the new shares be gifted to a person who is not an existing shareholder?
If not what would the new shareholder pay for the the new ones issued?
Thank You
Dear Levent
Thank you for your message.
I cannot comment on how much a new shareholder should pay for shares in a company, it would be likely that this should be related to the value of the shares at the time the shares are transferred. I would advise speaking to an accountant for some further advice.
Kind Regards
Rachel
Hi,
If you want only one shareholder (who is also a director) to have the ability to issue new shares, how would you do this? The shareholder does not have the majority of shares.
Thanks in advance,
Dear M B
Thank you for your message.
The rules for issuance of shares depend upon when the company was set up. If it was before the implementation of the 2006 Companies Act then the articles would need to be checked to find out if any new ones could be issued as you would need to check against the Authorised Share Capital. If the company was formed after the implementation of the 2006 Companies Act – the director’s can issue shares without authorisation from the shareholders if all 3 of the below apply:
No restriction on the directors’ authority in the articles of association;
The company has only 1 class of shares;
The new share issue does not create a new class of shares.
You would need an agreement of a quorum of directors to allow this.
If you would like further information, I would suggest discussing with a solicitor.
Hello,
I just opened an account with Rapid Formations and appreciate your services.
I just formed a company and should have used your service but now, I need to make some changes to the capitalization and wonder if that can be done freely before the first annual report is submitted. I need to split the shares (only 1000) were issued and I need to increase the authorized shares to leave some to issue later , eg., options.
Thanks for your help.
Hello Hugo
Thank you for your message.
Changes can be made to a company by filing a document called an “Annual Return”. We can help with this if you let me know what changes require to be made. There is a lot of information we would need to be able to make the changes you require as when you import a company we cannot receive private information from Companies House.
If you would like I could contact you directly if you can provide me with an e-mail or telephone number or please e-mail in to service@rapidformations.co.uk and ask for my colleague James Howell.
Kind Regards
Hi
I am wondering if there are ways that would prevent foundering shareholders of private limited company from dilution when there is a need to issue new shares to raise funds
Thank you
Dear Jimmy
Thanks for your message.
Unfortunately we are not able to offer advice on this matter and would suggest that you speak to a lawyer.
Kind regards
Is it still correct that an ltd can issues shares up to the value of £50,000 and no more?
Dear Miss Ridgwell
Thank you for your comment.
There is no limit to the number or value of shares you can register for a Limited by Shares company.
Best regards,
Rachel
It says above that ‘The company directors can therefore only issue new shares if the existing shareholders grant their approval’.
I would like to know if this has to be unanimous or a majority vote?
Many thanks
Hi Sharon
Thanks for your question.
The position regarding the issuance of shares by directors has been changed by the 2006 Companies Act provisions (enacted 1 October 2009) which have allowed directors to issue new shares if there is only 1 class of share in the company under Section 551 of the Companies Act as long as it meets the terms of Section 561 of the Companies Act. This provision is not available to any companies formed before the new regulations on 1st October 2009. There is no specific detail as to the percentage of directors required. If you are unsure there may be guidance in the company’s memorandum and articles and if still unsure I would suggest contacting a lawyer.
Best regards,
Rachel