How to issue shares in a private limited company

Looking to grow your private limited company? Issuing shares can help you raise the funds you need. In this article, we’ll walk you through the steps and key legal basics you should understand.

Constitutional Documents

First, begin by examining your company's constitutional documents: the articles of association ("Articles"), the memorandum of association (if your company was incorporated under the Companies Act 1985 ("CA 1985") or earlier), and any shareholders' agreement. These documents outline the company's internal governance and may contain specific provisions regarding the allotment and issue of shares.

Authorised Share Capital

This step is relevant only if your company was incorporated under the CA 1985 or earlier, as the concept of authorised share capital was abolished by the Companies Act 2006 ("CA 2006"). If your company's memorandum includes an authorised share capital that hasn't been amended or removed, this figure sets the maximum number of shares your company can issue. To remove this limitation, your company must pass an ordinaryresolution at a general meeting by written resolution, circulated to its shareholders.

Directors' Authority to Allot Shares

Next, determine whether your company's directors have the authority to issue shares. Under the CA 2006, this authority is derived from either section 550 or section 551, depending on whether your company has one or more than one class of shares.

• One Class of Shares: If your company is a private limited company with only one class of shares, directors can issue new shares without prior shareholder approval, provided this is not prohibited by the company's Articles. However, if your company was incorporated under the CA 1985 or earlier, the directors will need to obtain a one-off authority from shareholders, by ordinary resolution, giving directors authority to allot shares under section 550. Note that if the allotment involves creating a new class of shares, directors cannot rely on section 550 authority.

• More than One Class of Shares: For companies with more than one class of shares, or where the articles require shareholder approval for share allotments, directors must obtain shareholder authority. This authority can be granted through the company's Articles or by passing an ordinary resolution. The authorisation must specify the maximum number of shares that may be allotted and the expiration date, which cannot exceed five years from the date the resolution is passed.

Pre-Emption Rights

An important step in issuing shares is determining whether to exclude or disapply pre-emption rights. These rights, held by existing shareholders, grant them the first opportunity to acquire new shares in proportion to their current holdings, thereby protecting their ownership percentage. To disapply statutory pre-emption rights, your company can:

• amend the articles: Incorporate a specific provision that removes pre-emption rights.

• pass a special resolution to disapply pre-emption rights: Obtain shareholder approval, requiring at least a 75% majority, either through a written resolution or at a general meeting.

• articles of association may provide for a bespoke pre-emption regime, and so these should be examined carefully to identify any additional consents or procedures that must be observed.

Shareholders’ Agreement

A shareholders’ agreement is a contractual overlay to the company's constitution, setting out matters of governance agreed amongst the shareholders. A shareholders' agreement will commonly control the issue of shares and or make issues subject to consents or vetoes. It is essential to review the shareholders' agreement to ensure that the issue is compliant with what has been agreed.

Registration and Filing

The final step in issuing shares in your company involves registering the share allotment. It is crucial to ensure that new shareholders legally hold their shares and are recognised as members of the company. This involves updating the company's register of members and filing the appropriate forms with Companies House. The registration process includes:

• Issuing Share Certificates: Provide the relevant shareholder(s) with share certificates confirming their share ownership. It's important to note that while issuing share certificates should occur promptly, the CA 2006 allows up to two months from the allotment date for this action.

• Filing Form SH01: Submit the 'Return of Allotment of Shares' (Form SH01) to Companies House within 30 days of the share allotment. This form details the shares allotted and updates the company's statement of capital.

• Updating the Register of Members: Write up the company's register of members to reflect the new shareholders and their respective shareholdings.

• Amending the Persons with Significant Control ("PSC") Register: If the allotment affects the company's PSC status, update the PSC register accordingly. Additionally, file Form PSC01 with Companies House within 14 days of the change.

• Additional Filings: File a copy of the special resolution disapplying pre-emption rights (if needed) or a copy of the resolution of the shareholders approving the allotment (if needed) within 15 days.

Impact of the Economic Crime and Corporate Transparency Act 2023 ("ECCTA") on share allotments

The ECCTA will introduce several significant changes which will affect the allotment and issue of shares in your company although, at this stage there is no indication of when these provisions will come into force:

• Register of Members: Companies that previously opted to keep their Register of Members at Companies House will be required to maintain it themselves as the option for Companies House to keep membership details centrally is being removed.

• PSC Register: Companies will no longer have to keep PSC Register.

• Shareholder Information: The Register of Members will have to include shareholders' full forenames, surnames, and titles (if applicable).

• Shareholder list in confirmation statement: Private companies will be required to include a full list of shareholders, in the prescribed format, in their first confirmation statement after these ECCTA provisions come into force, even if there have been no changes in membership.

For advice about issuing shares in a private limited company, please contact one of our corporate lawyers.