UNIT 4: COMPANY FINANCE

Question 1

Allotting vs Issuing shares

Answer 1

 allotting shares = when a person acquires the unconditional right to be included in the company’s register of members in respect of the shares
 issuing shares = when the name of a shareholder has been entered on the register of members

Question 2

3 questions to consider when working out the procedure needed to allot shares?

Answer 2

1. Are there any constitutional restrictions on allotment?
2. Do the directors have authority to allot shares?
3. Are there any pre-emption rights?

Question 3

What is a constitutional restriction on allotment?

Answer 3

 Authorised share capital (ASC) clause: ceiling on the number of shares a company could have
 For companies incorporated prior to 1 October 2009, check whether they have updated their articles since that date.
 If not, the shareholders will need to pass an ordinary resolution to remove the ASC + copy of resolution filed at Companies House

Question 4

What to check in the articles for allotment limits?

Answer 4

 For all companies, check the company’s articles for a limit on the number of shares the company can have.
 If there is such a limit, change the articles by special resolution

Question 5

Authority for private companies incorporated under CA 2006 with one class of shares to allot shares?

Answer 5

have authority to allot shares without shareholder approval; all that is needed is a board resolution.

Question 6

Authority for private companies NOT incorporated under CA 2006 with one class of shares to allot shares?

Answer 6

If incorporated pre-CA 2006 = shareholders must pass ordinary resolution to give permission

Question 7

Authority for plcs and private limited companies with more than one class of shares to allot shares?

Answer 7

must obtain permission before they can allot shares w ordinary resolution (stating max number of shares + date on which authority will expire, which must not be more than FIVE YRS from date OR is passed)

when authority expires, needs renewing by OR with same requirements

UNLESS ARTICLES STATE authority - max shares allotted / date on which it will expire - not more than 5 yrs from incorporation.

 s551 is an exception to the general rule requiring special resolution for amending articles → this is renewed by ordinary resolution with copy filed at CH

Question 8

What is a pre-emption right?

Answer 8

rights of refusal over shares being allotted

Question 9

s561 equity securities rule?

Answer 9

Company must not allot ‘equity securities’ to a person unless it has first offered them to existing holders of ordinary shares in the company on the same or more favourable terms

Question 10

What is an equity security?

Answer 10

includes ordinary shares and rights to subscribe for, or to convert securities into, ordinary shares in the company

Question 11

Offer to existing shareholders rules?

Answer 11

 Offer to existing shareholders must state the period for acceptance and the offer cannot be withdrawn within that period
 s562(5): period for acceptance cannot be less than 14 days
 If any or all of the existing shareholders do not take up the offer, then the directors can offer the shares to other buyers

Question 12

Allotment of bonus shares?

Answer 12

 Exception: rights do not apply to the allotment of bonus shares if
 consideration for it is wholly or partly non-cash or
 if the shares are to be held under, allotted, or transferred pursuant to an employee share scheme

Question 13

Pre-emption rights in the company’s articles?

Answer 13

 private companies can exclude or restrict pre-emption rights by provisions contained in its articles, either generally or in relation to particular allotments (s567)
 overrides the statutory provisions in s561
 alternative provisions could be removed/altered by special resolution
 No pre-emption rights in model articles

Question 14

Disapplication of pre-emption rights?

Answer 14

 Private companies can disapply pre-emption rights contained in s561 for a particular allotment by special resolution
 Company might not want to wait for all shareholders to respond to their offers, or commercial reasons might justify allotting to a specific person

Question 15

Private companies with one class of shares wanting to disapply pre-emption rights?

Answer 15

 s569: shareholders of a private company “one class” may pass a special resolution disapplying the existing shareholders’ pre-emption rights