If you have a limited company and you have decided to bring new directors or investors on board (ie new shareholders) you will most likely offer them new shares of the business.
When businesses are expanding they may look to raise finance is by issuing new shares, but how do you know if you can do this, and what do you need to do?
Check you can do it first!
Before you are able to issue new shares you need to check whether you have the authority to do so. Depending on when your company was incorporated there will be different rules and documents you need to check.
If the company was incorporated before the Companies Act 1985 will have a different process to companies incorporated under the Companies Act 2006.
Directors have the authority to allocate new shares without getting permission from other shareholders if:
- The company was incorporated under the Companies Act 2006
- They are not prohibited from doing so by the company's articles of association
- The company only has one class of shares.
If the company was incorporated under the Companies Act 1985 or earlier the company must pass an ordinary resolution, to provide directors with authority to give new shares.
If your company does have more than one class of shares, your directors need to get authority from the current shareholders first before they can allot more shares.
Register the issue of new shares in the right places
Provided that you have established you have authority to issue new shares (not transferring shares, that’s another process!) your new shareholder will not be able to hold their shares or be a member of your company until you have registered the details.
You will need to register details of the new share
s in the following places:
- The company’s register of members.
- The company’s Register of People with Significant Control (PSC Register) if you have one.
- At Companies House using the SHO1 form, which can be found here. You must complete a return of allotments form and it must be completed within one month of the share allotment. The form does not ask for details of the people to whom the shares have been given, but the details of the shares themselves.
- Include in your company’s next Confirmation Statement. When you register the details of shares allotted at Companies House (see point 2.c above) the form does not cover the details of the new shareholders. You therefore must include the names of your new shareholders in the next Confirmation Statement.
- Update company accounts. Make sure you speak to the company accountant to ensure that the new shares are correctly reflected in the company’s accounts.
Read our blog ‘What to do when you appoint a new director’
Read our blog ‘5 tips for improving your board of directors’ skills’
Check out our Action Planning Tool.