Issuing new shares: who can approve it, who must be offered them first, and what to file

Can the directors issue shares?

For a private company with only one class of shares, the directors can allot more shares of that class “except to the extent that they are prohibited from doing so by the company’s articles”². Most small companies with only ordinary shares fall into this case.

If the company has more than one class of shares, or wants to create a new class, the directors need the shareholders’ authority, given by ordinary resolution or in the articles. Creating a new class with different rights usually means changing the articles too, which is a special resolution.

Who must be offered the shares first

Existing shareholders have a right of pre-emption. Before allotting new ordinary shares for cash, the company must offer each ordinary shareholder a share of them “on the same or more favourable terms”, in proportion to what they already hold, and wait until the offer period ends or everyone has replied³.

This protects shareholders from being diluted without a chance to keep their percentage. A private company can exclude the right in its articles, or the shareholders can agree to disapply it, so check your articles before you plan an issue to an outsider or to one founder only.

The return and the statement of capital

The return lists what was issued: the date or dates of allotment, the class, how many shares, their nominal value, and what was paid or is still unpaid on each¹. If shares were issued for something other than cash, such as a loan written off or an asset, say so.

It is accompanied by a statement of capital: the company’s whole share capital immediately after the allotment, not just the new shares¹. For each class, that includes the number of shares, their total nominal value and the total amount unpaid on them¹.

Check your PSCs afterwards

A share issue changes everyone’s percentage. In the example, the founder drops from 100% to 80%, which is still in the “75% or more” band, and the investor’s 20% is under the 25% test, so nothing changes. Issue 50 shares instead and the founder falls to about 67% while the investor reaches about 33%: both cross a line. Work it through for your own numbers: if anyone crosses 25%, 50% or 75%, that’s a PSC change to report within 14 days as well.

Filing the return

Fileyear’s share issue asks how many shares were issued, of which class and for what, adds them to the shares the company already has, works out the statement of capital, prepares a board minute and files form SH01.